IRS Extends Time to File Application for Tentative NOL Carryback Adjustment

(Parker Tax Publishing April 2020)

The IRS announced that it is providing relief for certain taxpayers to allow them to take advantage of amendments made to the net operating loss (NOL) provisions in Code Sec. 172 by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Specifically, the IRS is extending the deadline for filing an application for a tentative carryback adjustment under Code Sec. 6411 with respect to the carryback of an NOL that arose in any tax year that began during calendar year 2018 and that ended on or before June 30, 2019. Notice 2020-26.

Background

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) amended Code Sec. 172(b)(1) to carry back 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 NOL arises (carryback period). As a result of that amendment, taxpayers take into account such NOLs in the earliest tax year in the carryback period, carrying forward unused amounts to each succeeding tax year. The CARES Act also amended Code Sec. 172(a) to allow a deduction for a tax year beginning before January 1, 2021, in an amount equal to the aggregate of the NOL carryovers and carrybacks to such year.

The CARES Act amended Code Sec. 53(e) to accelerate the recovery of 100 percent of any remaining minimum tax credits of a corporation in its tax year beginning in 2019, as opposed to its tax year beginning in 2021. The CARES Act also added Code Sec. 53(e)(5) to permit a corporation to elect instead to recover 100 percent of any of its remaining minimum tax credits in its tax year beginning in 2018.

Code Sec. 6411 allows a taxpayer to file an application for a tentative carryback adjustment of the tax liability for a prior tax year that is affected by a NOL carryback provided in Code Sec. 172(b) or by carrybacks provided for in other Code sections. Under Reg. Sec. 1.6411-1(b)(1), taxpayers that are corporations must make the application on Form 1139, Corporation Application for Tentative Refund, and taxpayers other than corporations must make the application on Form 1045, Application for Tentative Refund. Code Sec. 6411(a) and Reg. Sec. 1.6511-1(c) provide that an application must be filed within 12 months of the close of the tax year in which the NOL arose. The tentative carryback adjustment procedure allows a taxpayer to obtain a quick tentative tax refund based on an NOL carryback. Under Code Sec. 6411(b), the IRS conducts a limited examination of the application and makes the resulting credit or refund within 90 days of the filing of the application.

The CARES Act permits a corporation to file an application for a tentative refund of any amount for which a refund with respect to its tax year beginning in 2018 is due by reason of an election under Code Sec. 53(e)(5), and provides generally that such application is to be treated and processed as an application made under Code Sec. 6411, provided the application is filed before December 31, 2020.

The CARES Act did not provide additional time to file tentative carryback adjustment applications with respect to NOLs arising in a tax year beginning on or after January 1, 2018, and ending before March 27, 2019, even though the time to file those applications had expired as of the date of enactment (i.e., March 27, 2020). Taxpayers whose losses in these tax years may now be carried back to an earlier tax year under the CARES Act will generally be able to file amended returns to claim refunds or credits resulting from the change in the law. These taxpayers, however, would not be able to take advantage of the expedited Code Sec. 6411 tentative carryback adjustment procedure without an extension of time to file Form 1139 or Form 1045.

Code Sec. 6081 provides that the IRS may grant a reasonable extension of time (generally not to exceed six months) for filing any return, declaration, statement, or other document required by the Code or by regulations thereunder.

Notice 2020-26

In Notice 2020-26, the IRS announced that it is granting a six-month extension to file Form 1045 or Form 1139, as applicable, to taxpayers that have an NOL that arose in a tax year that began during calendar year 2018 and that ended on or before June 30, 2019. This extension of time is limited to requesting a tentative refund to carry back an NOL and does not extend the time to carry back any other item.

For example, in the case of an NOL that arose in a tax year ending on December 31, 2018, a taxpayer normally would have until December 31, 2019, to file the Form 1045 or Form 1139, as applicable. However, due to the relief in Notice 2020-26, such taxpayers will now have until June 30, 2020, to file the Form 1045 or Form 1139, as applicable. If the taxpayer is a corporation, the deadline to claim a minimum tax credit described in Code Sec. 53(e)(5) is December 30, 2020, but in order to file one application for a tentative refund and claim both the NOL carryback and the minimum tax credit at the same time, the corporation must do so by the earlier of the two deadlines.

Compliance Tip: To take advantage of the extension of time for requesting a tentative refund based on an NOL carryback, the taxpayer must (1) file the applicable form no later than 18 months after the close of the tax year in which the NOL arose (that is, no later than June 30, 2020, for a tax year ending December 31, 2018), and (2) include on the top of the applicable form "Notice 2020-26, Extension of Time to File Application for Tentative Carryback Adjustment."

For a discussion of the quick refund procedures for tentative NOL carryback adjustments, see Parker Tax ¶261,130.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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