The CARES Act made several important changes to the treatment of NOLs. First, for tax years beginning after December 31, 2017 and before January 1, 2021, losses can again be carried back, but now for up to 5 years.
A taxpayer can elect to waive the carryback period, however, and instead carry the amounts forward. These losses, when carried forward to a year before 2021 – for example, a 2018 loss carried to 2019 – may offset 100% of taxable income. Businesses can now carry back 2018 and 2019 losses to as far back as 2013 and 2014, respectively, to recoup prior taxes. Even better, the losses will offset income taxed at a 35% rate in those years, generating a larger tax benefit than if those losses were carried forward (the corporate rate was reduced by the TCJA from 35% to 21%). But how to actually do this remained the burning questions for many CPAs.
The IRS finally issued guidance providing tax relief under the CARES Act for taxpayers with net operating losses and for partnerships filing amended returns.
COVID Relief For Taxpayers Claiming NOLs
Guidance for taxpayers with net operating losses that are carried back under the CARES Act includes providing procedures for:
• 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 January 1, 2018, and ended after December 31, 2017.
Six Month Extension Of Time For Filing NOL Forms
The IRS granted a 6 month extension of time to file Form 1045 or Form 1139, as applicable, with respect to the carryback of a net operating loss that arose in any taxable year that began during calendar year 2018 and that ended on or before June 30, 2019. Individuals, trusts, and estates would file Form 1045, and corporations would file Form 1139.
COVID Relief For Partnerships With NOLs
The IRS is allowing eligible partnerships to file amended partnership returns using a Form 1065, U.S. Return of Partnership Income, by checking the “Amended Return” box and issuing amended Schedules K-1, Partner’s Share of Income, Deductions, Credits, to each of its partners.
CONTACT US: June 30th is approaching rapidly, so contact us ASAP to get those Forms 1139 and 1045 for 2018 NOLs in progress. Questions? We have answers at CPA@fuoco.com.
