New Net Operating Loss Guidance from the IRS

Yesterday, the IRS issued additional guidance regarding claims for refunds related to changes made by the CARES Act to the tax treatment of net operating losses. Under the Tax Cuts and Jobs Act of 2017, the carryback period related to net operating losses (typically, two years) was eliminated and an indefinite carryforward instated. The CARES Act has reversed that position related to the carryback for tax years beginning after December 31, 2017 but before January 1, 2021, and now provides for a five-year carryback of net operating losses.

The new guidance, set forth in a series of Revenue Procedures and Notices (Rev. Proc. 2020-23, Rev. Proc. 2020-24 and Notice 2020-26), answers many procedural questions related to the amending of returns, claiming of refunds, treatment of fiscal year taxpayers, and elections to waive the carryback.

Of note, Revenue Procedure 2020-26 provides relief for the filing of an “Application for Tentative Refund” under Form 1139 (corporation) or Form 1045 (other taxpayers) for taxpayers with 2018 net operating losses.  For calendar year taxpayers, the deadline for the filing of such form normally would have been December 31, 2019.  The IRS has provided a six-month extension of time to file, until June 30, 2020, for any taxable year that began on or after January 1, 2018 and that ended on or before June 30, 2019.

The CARES Act provides for significant relief during the current calendar year. However, provisions like the net operating loss carryback relief and others do provide for relief in prior tax years as well. Please contact a member of the HSE Tax practice group with any questions.

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