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IRS Guidance on Net Operating Loss Carrybacks

The COVID-19 pandemic has triggered a tremendous volume of new legislation and rules in the tax arena. As just one set of these rules, the Internal Revenue Service has issued guidance providing application of the net operating loss carryback rules enacted under the CARES Act. By allowing carryback of net operating losses, Congress intends to provide access to cash to those taxpayers able to utilize such a carryback.  Note that the loss carryback rules were eliminated under the Tax Cuts and Jobs Act of 2017 enacted near the end of 2017.  So the CARES Act provisions reinstituting those carryback rules constitute reversal of this significant provision of tax reform.

A brief summary of those changes and references to these new net operating loss rules are as follows:

COVID Relief for taxpayers claiming NOLs

Revenue Procedure 2020-24 (PDF) provides guidance to taxpayers with net operating losses that are carried back under the CARES Act by providing procedures for:

  • waiving the carryback period in the case of a net operating loss arising in a taxable year beginning after Dec. 31, 2017, and before Jan. 1, 2021,
  • 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 Jan. 1, 2018, and ended after Dec. 31, 2017.

Six month extension of time for filing NOL forms

In Notice 2020-26 (PDF), the IRS grants a six-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 (PDF), and corporations would file Form 1139 (PDF).

COVID relief for partnerships with NOLs

On April 8, 2020, the IRS issued Revenue Procedure 2020-23 (PDF), 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. Partnerships filing these amended returns should write “FILED PURSUANT TO REV PROC 2020-23” at the top of the amended return.

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