IRS Grants Six Month Extension of Time to File Certain Claims for Tentative Refunds Related to CARES Act NOL Changes
The IRS is moving to simplify the filing of net operating loss carryback claims to take advantage of the CARES Act revisions to NOL provisions, by extending for six months the time period a tentative carryback form (Forms 1045 and 1139) may be filed, per Notice 2020-26.[1]
The Notice briefly describes the key CARES Act changes to net operating losses:
Section 2303(b) of the CARES Act amends § 172(b)(1) to carry back any NOL arising in a taxable year beginning after December 31, 2017, and before January 1, 2021, to each of the five taxable years preceding the taxable year in which the NOL arises (carryback period). As a result of that amendment, taxpayers take into account such NOLs in the earliest taxable year in the carryback period, carrying forward unused amounts to each succeeding taxable year. Section 2303(a) of the CARES Act amends § 172(a) to allow a deduction for a taxable year beginning before January 1, 2021, in an amount equal to the aggregate of the NOL carryovers and carrybacks to such year.[2]
While such carrybacks can be claimed by filing a formal claim for refund (normally using Form 1040-X or 1120-X), most taxpayers have instead filed such requests for refunds under the tentative refund provisions of IRC §6411:
Section 6411 allows a taxpayer to file an application for a tentative carryback adjustment of the tax liability for a prior taxable year that is affected by a NOL carryback provided in § 172(b) or by carrybacks provided for in other Code sections. Under §1.6411-1(b)(1) of the Income Tax Regulations, taxpayers that are corporations must make the application on Form 1139, Corporation Application for Tentative Refund, and taxpayers other than corporations must make the application on Form 1045, Application for Tentative Refund. The Code and regulations require that an application must be filed within 12 months of the close of the taxable year in which the NOL arose. Section 6411(a); § 1.6411-1(c). The tentative carryback adjustment procedure allows a taxpayer to obtain a quick tentative tax refund based on an NOL carryback. Under § 6411(b), the Internal Revenue Service (IRS) conducts a limited examination of the application and makes the resulting credit or refund within 90 days of the filing of the application.[3]
Thus, the deadline for a taxpayer to have filed a claim for tentative refund for a loss that arose in 2018 would have been December 31, 2019—a date that had already passed when the CARES Act was signed into law on March 27, 2020.
The IRS, citing the authority granted to the agency under IRC §6081 to grant a reasonable extension of time, generally not to exceed six months, to file documents with the agency has decided to make use of that authority to extend the time to file the Forms 1045 and 1139.
Specifically, the Notice provides:
The Department of the Treasury and the IRS grant a six-month extension of time to file Form 1045 or Form 1139, as applicable, to taxpayers that have an NOL that arose in a taxable year that began during calendar year 2018 and that ended on or before June 30, 2019. This extension of time is limited to requesting a tentative refund to carry back an NOL and does not extend the time to carry back any other item.[4]
The Notice gives the following example of its application:
For example, in the case of an NOL that arose in a taxable year ending on December 31, 2018, a taxpayer normally would have until December 31, 2019, to file the Form 1045 or Form 1139, as applicable, but due to this relief, will now have until June 30, 2020, to file the Form 1045 or Form 1139, as applicable.[5]
The steps a taxpayer must take to take advantage of this procedure are as follows:
To take advantage of the extension of time for requesting a tentative refund based on an NOL carryback, the taxpayer must perform the following actions:
(a) File the applicable form no later than 18 months after the close of the taxable year in which the NOL arose (that is, no later than June 30, 2020, for a taxable year ending December 31, 2018); and
(b) Include on the top of the applicable form “Notice 2020-26, Extension of Time to File Application for Tentative Carryback Adjustment.”[6]
The CARES Act also accelerated the refund of any unused corporate minimum tax credits in 2018 and 2019 under IRC §53(e)(5) and specifically provided this refund could be claimed using the tentative refund procedures so long as the request for tentative refund is filed by December 30, 2020. The notice points out that while this relief is for a longer period, if a calendar year C corporation wishes to file only a single Form 1139 for both the net operating loss carryback and the refund of minimum tax credit, that would be due by June 30, 2020. Continuing with the example above, the IRS provides:
For this same taxpayer, if the taxpayer is a corporation, the deadline to claim a minimum tax credit described in § 53(e)(5) is December 30, 2020, but in order to file one application for a tentative refund and claim both the NOL carryback and the minimum tax credit at the same time, the taxpayer must do so by the earlier of the two deadlines.[7]