The CARES Act has loosened the rules around net operating loss deductions (NOLs), in addition to other tax relief. The CARES Act provides a five-year carryback for losses earned in 2018, 2019, or 2020. Previously, the Tax Cuts and Jobs Act (TCJA) of 2017 eliminated NOL carrybacks. Due to statute of limitations rules, this would have limited the ability of some taxpayers to file the NOL carrybacks. The IRS issued guidance on April 9, 2020 that allows filing of the NOL carryback by June 30th, 2020.
June 30th Deadline
The IRS granted a six-month extension to file the required forms for 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 (fiscal year). The current code and regulations require that an application be filed within 12 months after the end of the taxable year in which the NOL arose. The IRS extended the deadline for an additional six months. For an NOL incurred by a taxpayer with a 2018 calendar year, this would extend the deadline for filing a claim to June 30, 2020.
Individuals, trusts, and estates would file Form 1045, and corporations would file Form 1139.
Waive 5-year Carryback
Taxpayers may elect to waive the carryback period for an NOL arising in a taxable year beginning in 2018 or 2019. 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 taxable year ending after March 27, 2020. Once made, the election is irrevocable. An analysis of historical tax rates vs. expected tax rates should be calculated for your NOL tax attributes, to ensure the most
beneficial utilization.
International Repatriation Complexities
For businesses with international operations that had deemed repatriation income in prior years, the use of NOLs becomes more complex considering the 965(n), Subpart F, and Rev. Proc. 2020-24 rules. Please consult a tax advisor for this analysis. These modifications provide much-needed relief for businesses, increasing liquidity that will help them navigate a large decline in cash flow.
Manuel J. Ramirez, CPA MST FABFA
Manuel is Chairman/International Tax Partner at RJI CPAs, with specific experience in international and multi-state taxation, M&A transactions, and representation before the IRS and state regulatory agencies. Manuel can be reached at 949-852-1600 or MRamirez@rjicpas.com.
Fernando Jimenez, CPA, MST, CEO
Fernando Jimenez is the Chief Executive Officer and tax partner of RJI CPAs. Fernando has experience in corporate re-organizations, buy/sell transactions, representation before the IRS and state agencies, succession and operations planning, and transactional analysis. He can be reached at 949.852.1600 or fjimenez@rjicpas.com.
About RJI CPAs
Established in 1980, RJI CPAs specializes in audit, accounting, corporate and international tax issues for publicly traded and privately held companies. RJI CPAs is PCAOB-registered and is the Southern California member firm of DFK International, the 7th largest global accounting network.
