IRS Provides CARES Act Guidance for Taxpayers with NOLs

As set out in detail in my earlier blog post, the CARES Act amended Internal Revenue Code section 172(b)(1) to provide for a carryback of any net operating loss (NOL) arising in a tax year beginning after December 31, 2017, and before January 1, 2021, to each of the five tax years preceding the tax year in which the loss arose.

On April 9, the Internal Revenue Service (IRS) issued Revenue Procedure 2020-24 providing rules for taxpayers to follow in taking into account such NOLs in the earliest tax year in the carryback period, carrying forward unused amounts to each succeeding tax year.

The guidance provides procedures to taxpayers with NOLs that are carried back under the CARES Act provisions. Specifically procedures are given for:

  • Waiving the carryback period in the case of a NOL arising in a taxable year beginning after Dec. 31, 2017, and before Jan. 1, 2020,
  • Disregarding certain amounts of foreign income subject to transition tax that would normally have been included as income during the five-year carryback period, and
  • Waiving a carryback period, reducing a carryback period, or revoking an election to waive a carryback period for a taxable year that began before Jan. 1, 2018, and ended after Dec. 31, 2017.

Six Month Extension For Filing NOL Tentative Refund Forms

The NOL provisions enacted by the CARES Act provide an opportunity for taxpayers that previously paid federal income taxes to access cash from these NOL carrybacks quickly via  so-called “tentative refund procedures”. The Forms to file for the tentative refund procedures are Form 1045 for Individuals, trusts, and estates, or Form 1139, for corporations.

In Notice 2020-26, the IRS granted a six-month extension of time to file these forms as applicable, with respect to the carryback of a NOL that arose in any taxable year that began during calendar year 2018 and that ended on or before June 30, 2019.  This extension is very important because the CARES Act did not provide additional time to file tentative carryback adjustment applications for NOLs arising in a tax year beginning on or after Jan. 1, 2018, and ending before March 27, 2019, even though the time to file those tentative refund forms had expired when the Act was made law.

With the extension of time to file as provided in the Notice, these taxpayers can now take advantage of the expedited tentative carryback adjustment procedure. To take advantage of this extension, taxpayers must file the form no later than 18 months after the close of the tax year in which the NOL arose (i.e., no later than June 30, 2020, for a tax year ending Dec. 31, 2018); and include on the top of the form “Notice 2020-26, Extension of Time to File Application for Tentative Carryback Adjustment.”

In a Hurry? Fax the Forms to IRS for Quick Refund

The IRS has updated FAQs regarding Form 1139 and Form 1045 to Claim Quick Refunds of the Credit for Prior Year Minimum Tax Liability of Corporations and Net Operating Loss Deductions. Starting on April 17, 2020 and until further notice, the IRS will accept eligible refund claims Form 1139 submitted via Fax to 844-249-6236 and eligible refund claims Form 1045 submitted via fax to 844-249-6237. Before then, these fax numbers will not be operational. IRS encourages taxpayers to wait until this procedure is available rather than mail their Forms 1139 and 1045 since mail processing is being impacted by the COVID-19 emergency.

  • [UPDATE May 1 2020: The Internal Revenue Service has posted new Frequently Asked Questions (FAQs) about Carrybacks of NOLs for Taxpayers who have had Section 965 Inclusions.]

Posted April 16, 2020 / Updated May 1, 2020

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