The IRS has provided guidance for taxpayers who wish to waive or reduce the amount of net operating loss (NOL) that must be carried back related to NOLs arising in tax years beginning in 2018, 2019 and 2020 (Rev. Proc. 2020-24). It has also extended the deadline for filing an application for tentative carryback adjustment under Section 6411. This extension applies to NOLs that arose during a tax year beginning in 2018 and ending on or before June 30, 2019.
Section 2303(b) of the CARES Act amended Code Section 172(b)(1) to allow a carryback of any NOL arising in a tax year beginning after December 31, 2017 and before January 1, 2021. The carryback period is each of the 5 years immediately preceding the tax year in which the loss arises, with any excess carried forward. Section 172(b)(3) allows a taxpayer who is entitled to a carryback to make an election to relinquish the NOL carryback period for any tax year. The election is irrevocable.
The election must be made no later than the due date (including extensions) for filing the taxpayer’s federal income tax return for the first year that ends after March 27, 2020. For any person or entity filing a calendar year return, this means 2020 returns due in 2021. Taxpayers will make the election by attaching to the federal tax return a separate statement for each tax year for which the carryback period is to be waived. The election statement must state that the taxpayer is electing to apply Section 172(b)(3) under Revenue Procedure 2020-24 and the tax year for which the statement applies.
Additionally, this revenue procedure states that taxpayers that have an inclusion in income due to Section 965(a) in 2018, 2019, or 2020 can elect to exclude that year from the NOL carryback period. For an NOL arising in 2018 or 2019, this election must be made no later than the due date, including extensions, for filing the taxpayer’s federal income tax return for the first tax year ending after March 27, 2020. Again, for calendar year taxpayers, this is the 2020 return due in 2021. For an NOL arising in a tax year beginning after December 31, 2019 and before January 1, 2021, the election must be made no later than the due date (including extensions) for filing the federal income tax return for the year in which the NOL arises. The election is made by attaching a statement to the return.
The IRS also released guidance in Notice 2020-06 which extends the deadline for filing an application for tentative carryback adjustment under Section 6411. The extension is applicable for NOLs that arose in any tax year that began during 2018 and ended on or before June 30, 2019. Section 6411 permits taxpayers to file an application for a tentative carryback adjustment of the tax liability for a prior tax year that is affected by an NOL carryback. Corporations use Form 1139, Corporation Application for Tentative Refund, and all other taxpayers use Form 1045, Application for Tentative Refund. The applications are required to be filed within 12 months of the close of the tax year for which the NOL arose. This procedure is beneficial to taxpayers because they are able to obtain a quick tentative tax refund. A limited examination of the application is conducted by the IRS and it makes the resulting credit or refund within 90 days of the application filing date. The CARES Act did not provide an extension to file these forms for tax years beginning during 2018 and ending on or before March 27, 2019, even though the deadline to file them had passed. Therefore, the IRS is granting a 6-month extension of time to file Form 1139 or Form 1045 for taxpayers that have an NOL that arose in a tax year beginning in 2018 and ending on or before June 30, 2019. This extension of time is only applicable to requesting a tentative refund to carryback an NOL and does not extend the time to carry back any other item.
Taxpayers wishing to take advantage of this extension must file the applicable form no later than 18 months after the close of the tax year in which the NOL arose and include on the top of the form “Notice 2020-26, Extension of Time to File Application for Tentative Carryback Adjustment.” Beginning April 17, 2020, the IRS is also allowing taxpayers to submit these applications via fax in order to expedite the processing. Previously, these forms were only accepted via regular mail. Taxpayers can fax applications as follows:
Taxpayers who previously submitted applications via regular mail after March 27, 2020 can resubmit the same form via fax.
Please contact us if you have any questions about these elections or carryback procedures. We would be happy to assist you in determining if you or your business may benefit from taking advantage of any of these provisions.