The marginal increase in tax, for the previous years, caused by the portion of elected farm income carried back from the current year, is combined with tax from the current year. The greatest tax savings result from a very high current year taxable income carried back to years that have very low taxable income. Corporations, estates, and trusts are not allowed to use income averaging. However, an individual, a partner in a partnership, and an S Corporation shareholder can average partnership or S Corporation distributions on their individual tax returns. Under prior law, a NOL could be carried back two years to get a refund of taxes paid in those prior years, or carried forward for up to 20 years.
Special rules allow a loss in a federal disaster area to be carried back three years.
Beginning in 1998, agricultural producers can only carry back losses for five years. If the current year taxable income is negative or a loss, the loss this year may be applied to the five previous years. If taxes were paid in the last five years, the loss could be carried back to generate a refund of those taxes paid. The USDA has declared many Oklahoma counties eligible for some form of federal assistance. This declaration allows producers in these counties to use the weather related sale of livestock rules for 2000.