IRS provides individuals with additional extension relief, guidance on NOL carrybacks

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April 2020

Overview

In response to remaining questions arising after enactment of the Coronavirus Aid, Relief, and Economic Security ACT (CARES Act or Act), and issuance of Notices 2020-18 and 2020-20, the IRS released additional guidance on April 9.

Notice 2020-23 addresses the automatic extension of the filing and payment deadlines for individuals and businesses for returns not covered under the two earlier Notices. Previously, Notice 2020-18 provided that taxpayers generally have until July 15 to file and pay federal income taxes originally due April 15, and Notice 2020-20 provided a similar extension to certain federal gift (and generation-skipping transfer) tax return filings and payments. The most recent Notice expands this extension to generally apply to all taxpayers having a filing or payment deadline falling on or after April 1 and before July 15 (originally or pursuant to a valid extension).

The IRS also issued Revenue Procedure 2020-24, providing guidance to taxpayers with net operating losses (NOLs) arising in tax years beginning after December 31, 2017 and before January 1, 2021 on the computation of the NOL, as well as elections available. Furthermore, the IRS issued Notice 2020-26 granting a six-month extension of time to file a Form 1045 application for tentative refund for individuals, estates, or trusts under Section 6411 for an NOL arising in a tax year beginning after December 31, 2017 and ending before July 1, 2019. For taxpayers filing Form 1045, the IRS is encouraging taxpayers to refrain from mailing the refund claims, and instead fax the refund claims to the IRS starting on April 17, 2020 when the fax line is available. This will be the preferred method of filing until further notice. Additional details can be found within the IRS’s Temporary procedures to fax certain Forms 1139 and 1045 due to COVID-19 release. See PwC’s Insight, Taxpayers to fax Forms 1139 and 1045 to claim AMT and NOL refund for additional details. 

The takeaway

The IRS has provided much-needed guidance related to the extension of tax filing and payment deadlines, as well as NOL carryback claims, including their computation and the six-month extension for filing Form 1045. We expect more guidance to be provided on procedural issues and on individual provisions of the CARES Act. Specifically, additional guidance could be forthcoming on how a taxpayer should account for an NOL that arose from an excess business loss under Section 461(l) in the 2018 tax year and can no longer be taken on the 2019 tax return since the excess business loss limitations are not applicable until tax years beginning after December 31, 2020 under the CARES Act.

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Frank Graziano

Personal Financial Services Leader, PwC US

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