Final answer:
The most likely reason a taxpayer would choose not to carry back an NOL is because they are in a lower tax bracket in the carryback years and expect to be in a higher tax bracket in the future, making the NOL more valuable in offsetting higher taxed income. Option e
Step-by-step explanation:
The most likely reason a taxpayer would elect not to carry back a Net Operating Loss (NOL) to prior years is e. the taxpayer is in a low marginal tax bracket in the carryback years but expects to be in a high marginal tax bracket in future years.
When a taxpayer is in a lower tax bracket in the earlier years, utilizing the NOL carryback may not be as beneficial as using it in future years when their income, and thus their tax rate, is anticipated to be higher. This is because the value of the deduction is greater when it offsets income that would otherwise be taxed at a higher rate.
Tax brackets are designed so that as income increases, the tax rate applied to the marginal dollar also rises. If a taxpayer expects their income to grow in the future, potentially pushing them into a higher tax bracket, it would be more advantageous to use the NOL in those future years.
Additionally, the potential for changes in government fiscal policy, such as budget deficits increasing future taxes or surpluses leading to future tax cuts, can affect the strategic decision-making of taxpayers when considering how to best utilize their NOLs. Option e