The IRS has updated its FAQ on “Temporary procedures to fax certain Forms 1139 and 1045 due to COVID-19,”[1] to provide that the ability to fax claims for refund using Forms 1139 and 1045 will continue through December 31, 2020.  After that date, the fax numbers can no longer be used for that purpose.

The FAQ, which we’ve discussed previously, allows those filing tentative refund claims under sections 2303 and 2305 of the CARES Act to fax the claims to the IRS rather than mailing the claims to the IRS.  Those covered claims are described as follows by the IRS in the FAQ:

In response to the COVID-19 Pandemic and solely to implement the following provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), until further notice, the IRS is implementing the temporary procedures described below for digital transmission of Form 1139 and Form 1045:

• Section 2303 makes several modifications to net operating losses, including requiring a taxpayer with a net operating loss arising in a taxable year beginning in 2018, 2019, or 2020 to carry that loss back to each of the five preceding years unless the taxpayer elects to waive or reduce the carryback; and providing a carryback for a two-year period of NOLs arising during a taxable year that began in 2017 and ended during 2018; and

• Section 2305 modifies the credit for prior-year minimum tax liability of corporations, including to accelerate the recovery of remaining minimum tax credits of a corporation for its 2019 taxable year from its 2021 taxable year and to permit a corporation to elect instead to recover 100 percent of any of its remaining minimum tax credits in its 2018 taxable year.[2]

Tentative refund claims must be filed within one year after the end of the year in which the claim arises.[3]  The IRS has decided to end the period during which faxes will be accepted at the same time as the period to file the Forms 1139 and 1045 will end for calendar year taxpayers.

Question 21, added on October 14, provides:

21. When does the temporary faxing process described in these FAQs end?

The last day to fax an eligible refund claim under these procedures is December 31, 2020.  The fax numbers listed herein will no longer be operational as of midnight EST on December 31, 2020.  The instructions to the Form 1139 and Form 1045 provide the applicable requirements for how to submit these forms to IRS.  The end of the faxing process is independent of any filing due dates.  For example, the last day to file Form 1139 electing to take the 100% refundable minimum tax credit in 2018, is December 30, 2020.  Additionally, if you file one application for a tentative refund and claim both the NOL carryback and the minimum tax credit at the same time, you must file the application by the earliest applicable deadline.[4]

By cutting off the fax lines at that time, the IRS will require all calendar year 2020 claims to be filed other than by fax.  As well, fiscal year taxpayers with a 2019 tax year who have not filed a claim by December 31 will also be forced to mail in their claims rather than faxing them in.

Note that while the deadline for the tentative claims for refund is one year from the end of the year generating the claim, net operating loss carrybacks arising from those years may still be carried back using Form 1040X or 1120X even after the one year period ends. 

IRC §6511(d)(2) provides that the statute for filing a standard claim for credit or refund arising from a net operating loss shall be “that period which ends 3 years after the time prescribed by law for filing the return (including extensions thereof) for the taxable year of the net operating loss or net capital loss which results in such carryback, or the period prescribed in subsection (c) in respect of such taxable year, whichever expires later.”

Example

Alison has a net operating loss originating in 2019 of $100,000, which is eligible for a five-year carryback period under the provisions of the CARES Act.  She filed her 2019 return prior to April 15, 2020.  Her loss would go back to 2014, a year in which Alison timely filed her return prior to April 15, 2015.  Normally the time period for Alison to claim a refund related to 2014 would have ended on April 15, 2018.

But per the special rule related to claims arising from net operating losses, Alison has until April 15, 2023 (three years from April 15, 2020) to claim a refund of taxes from 2014 that relate to her 2019 net operating loss.  Note that only a refund related to the net operating loss is covered by this rule—if Alison had failed to claim other allowed deductions in 2014, she could not now claim an additional amount of refund from 2014 related to those expenses. 

If Alison files her claim on or before December 31, 2020, she may use Form 1045 to claim the refund and may fax that claim to the IRS.  If she does not file until January 1, 2021 or later, she will file a Form 1040X for 2014 to claim a refund from 2014 related to her 2019 net operating loss.

IRC §6511(c), mentioned as part of the time period to file the claim, refers to an extension of time for assessment of tax entered into under an agreement pursuant to IRC §6501(c).

[1] Temporary procedures to fax certain Forms 1139 and 1045 due to COVID-19, IRS website, October 14, 2020, https://www.irs.gov/newsroom/temporary-procedures-to-fax-certain-forms-1139-and-1045-due-to-covid-19 (retrieved October 15, 2020)

[2] Temporary procedures to fax certain Forms 1139 and 1045 due to COVID-19, IRS website, https://www.irs.gov/newsroom/temporary-procedures-to-fax-certain-forms-1139-and-1045-due-to-covid-19 (retrieved October 15, 2020)

[3] See Form 1045 Instructions, When to File, https://www.irs.gov/instructions/i1045 (retrieved October 15, 2020) and Form 1139 Instructions, When to File, https://www.irs.gov/instructions/i1139 (retrieved October 15, 2020)

[4] Temporary procedures to fax certain Forms 1139 and 1045 due to COVID-19, IRS website, October 14, 2020, https://www.irs.gov/newsroom/temporary-procedures-to-fax-certain-forms-1139-and-1045-due-to-covid-19 (retrieved October 15, 2020)