cover Claim Refunds for Net Operating Loss Carrybacks

This is a series of 5 CARES Act Tax Implications to consider

Prior to the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Tax Cuts and Jobs Act (TCJA) eliminated Net Operating Loss (NOL) carrybacks for tax years beginning after 2017.

This meant there was an indefinite carryforward of those NOLs, and only farming NOLs could be carried back for 2 years. TCJA also imposed a limit on NOL carry forward utilization of 80% of taxable income.

Under the CARES Act, corporations, partnerships and certain other taxpayers are temporarily permitted to carryback NOLs up to five years from taxable years 2018, 2019 and 2020.

NOLs that were generated during taxable years beginning after December 31, 2017, could only be carried forward, not back, and they could only offset 80 percent of the taxable income in the year they were used. The CARES act changed these rules.

Now, the NOLs for 2018, 2019, and 2020 can be carried back up to five years. This allows for an immediate claim for refund for taxpayers who had taxable income during the carryback time period.

New Procedures for Filing Tentative Carryback Applications

Due to the expected high number of NOL carryback refund claims, along with the anticipated IRS delays in processing such refunds, the IRS has temporarily allowed taxpayers to file tentative NOL carryback applications by fax.

The IRS requested that during the corona pandemic taxpayers not mail the carryback applications. This new procedure, which is effective April 17, 2020 (until further notice), only applies to claims filed on Form 1139 or Form 1045, which means the new fax procedure does not apply to other refund claims.

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