I am doing this study where I need to calculate the benefits of carrying back and forward net operating losses (NOLs) besides other. Following the literature, I use a simplified framework in which a firm with a NOL at year $t$ can carry it back to years $t-3,t-2,t-1$ to basically get a refund and in case the loss is not offset, it can decide to carry it forward to years $t+j, \ j=1,2,...,18$. It is not important if this is really the case, I am aware there are further details about the procedure but as I mentioned, it is a simplified framework. My question is the following:

Imagine in year $t-3$ I have a positive taxable income of 50, in $t-2$ it is -50, in $t-1$ it is 50 again and in $t$ it is -50. Now, say also at $t-5, t-4$ I have a taxable income of zero (alternatively: the firms was not born yet). Now, according to the IRS rules mentioned above, the firm can carry back the loss in $t-2$ to year $t-3$ and get a refund. In year $t$, it will decide also to carry back the loss. Now: can it still carry back the loss to year $t-3$ although it was "used up" by the NOL in period $t-2$? I know it might sound strange, but I was thinking it that would be possible because the refund that one would get in year $t-2$ is relative to the NOL in $t-2$ while at $t$ th refund would be for year $t$. I understand it is more natural to think that once "exhausted", a previous year with positive income cannot be used to carry back the loss again to that year; however, I would like to hear someone's opinion about it so that I can confirm or not my view.


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