How to Use or Sell a Large Net Income Loss Tax Credit From a Failed Business?

Tax professional here. I can shed some light on your unusual situation. Net Operating Losses (NOLs) are not like some other tax credits that can be sold or transferred - they're specifically tied to the taxpayer who incurred them. Unfortunately, you generally cannot sell or transfer your NOL to another taxpayer. The tax code is designed so these losses offset your own future income. Prior to the Tax Cuts and Jobs Act (TCJA), NOLs could be carried back 2 years and forward 20 years. The TCJA changed these rules - now NOLs generally can only be carried forward indefinitely but are limited to offsetting 80% of taxable income in any given year. Your best options are: 1) Continue carrying the loss forward to offset your own future income, 2) If you're considering starting another business venture, the NOL could be valuable in offsetting future business profits, or 3) Consult with a specialized tax attorney about potential corporate restructuring options if you're planning any major business moves.

After reading your situation, it reminded me of a similar tax problem I had last year with some complicated business losses. I was completely stuck trying to figure out how to properly document everything until I found this AI tool called taxr.ai (https://taxr.ai). It really helped me understand my options for handling business losses and tax credits. The thing that was super helpful was uploading my previous tax documents and getting a detailed analysis of how my losses were being carried forward. It flagged several issues I had no idea about and explained exactly how the loss carryforward rules applied to my specific situation. It even suggested some restructuring options I hadn't considered.

Just wanted to follow up about that taxr.ai site mentioned earlier. I decided to try it with my partnership loss situation, and wow - it actually found something significant. Turns out I had been incorrectly classifying some of my business activities which was preventing me from utilizing losses properly. The system analyzed my previous returns and identified that I qualified for the "material participation" exception that would allow me to use more of my losses against other income. It showed me exactly which parts of my return needed to be corrected and even provided the specific tax code references. Already submitted an amended return and it looks like I'll be getting back around $22k from previous years. Definitely worth checking out if you're dealing with complex loss situations.

I'm seeing a lot of advice about the technical aspects of NOLs, but a practical issue is dealing with the IRS when you have these complicated tax situations. When I had to sort out some business losses last year, I spent WEEKS trying to get through to someone at the IRS who could actually help. After wasting hours on hold, I finally found this service called Claimyr (https://claimyr.com) that got me through to an actual IRS agent in under 45 minutes. They have this system that navigates all the IRS phone menus and waits on hold for you, then calls when an agent is available. You can see how it works here: https://youtu.be/_kiP6q8DX5c It made a huge difference because I was able to speak directly with someone in the business tax department who confirmed exactly how I should document my loss carryforwards on my return.

I need to eat my words about that Claimyr service from my skeptical comment earlier. After another frustrating day of trying to reach someone at the IRS about my business tax issue, I broke down and tried it. Honestly, I was shocked at how well it worked. I'd been trying for WEEKS to speak with someone about a specific business loss documentation issue. The service had me connected with an IRS business tax specialist in about 35 minutes, while my previous attempts had me hanging up after 2+ hours on hold. The agent was able to confirm exactly how my NOL carryforward should be documented and which forms I needed to include with my return. Saved me hours of frustration and probably prevented me from making an error that would have triggered correspondence or worse, an audit. Sometimes it's worth paying for convenience when dealing with the IRS.

One thing nobody has mentioned yet - have you looked into Section 382 limitations? If you're considering incorporating a new business that might eventually use these NOLs, you should know that there are strict rules about ownership changes when NOLs are involved. Section 382 of the tax code limits how much of an NOL can be used after an "ownership change." The IRS doesn't want people trading companies just for their tax attributes. So if you start a new corporation that you want to eventually use these losses in, be very careful about any ownership changes, investment rounds, etc. I had a client with substantial NOLs who unknowingly triggered Section 382 limitations by bringing in new investors, and it severely restricted how much of their NOLs they could use each year going forward.

Might be an unpopular opinion but with a loss that big ($2.8 million) I wouldn't rely on forum advice. This is definitely "hire a tax attorney who specializes in business losses" territory. The consultation fee will be worth it because they might identify options none of us here would know about. Different business structures, potential for a partial sale of rights, reorganization possibilities - these are complex areas with lots of exceptions and special rules. A specialist might find creative but fully legal approaches that could help you monetize at least some portion of these losses.