The CARES Act restored the ability to carryback net operating losses temporarily. The loss carrybacks were restored for 2018, 2019 and 2020, with special provisions provided for electing to carry losses from 2018 and/or 2019 forward to take care of the problem that it was too late in many cases to timely elect to forego the carryback period. In Revenue Procedure 2020-24[1] the IRS has provided procedures for actions related to these net operating losses.

Waiving the Entire Five-Year Carryback

A taxpayer that wishes to waive the five-year carryback period for 2018 and/or 2019 will take the following steps.

(1) Elections to waive carryback under § 172(b)(3) for NOLs arising in taxable years beginning in 2018 or 2019. A taxpayer within the scope of this revenue procedure may elect under § 172(b)(3) to waive the carryback period for an NOL arising in a taxable year beginning in 2018 or 2019. Such an election must be made no later than the due date, including extensions, for filing the taxpayer’s Federal income tax return for the first taxable year ending after March 27, 2020. A taxpayer must make an election described in this section 4.01(1) by attaching to its Federal income tax return filed for the first taxable year ending after March 27, 2020, a separate statement for each of taxable years 2018 or 2019 for which the taxpayer intends to make the election. The election statement must state that the taxpayer is electing to apply § 172(b)(3) under Rev. Proc. 2020-24 and the taxable year for which the statement applies. Once made, the election is irrevocable.[2]

Bypass §965 Years in the Carryback Period

Taxpayers are allowed to elect to exclude only §965 years from the carryback period, avoiding the complications of dealing with that area. Such an election will have the following effect:

An election under § 172(b)(1)(D)(v)(I) to exclude all section 965 years from the carryback period for an NOL allows a taxpayer to disregard those taxable years when applying an NOL to the carryback period and determining whether the taxpayer has an overpayment and can receive a refund or credit for any of the remaining years in the carryback period to which the NOL is applied.[3]

What this election does not do is allow the taxpayer to go back to even earlier years to replace the excluded years—rather, while no loss goes into the §965 years, they still count as one of the five years:

A taxpayer who makes an election under § 172(b)(2)(D)(v)(I) for an NOL must include all section 965 years for purposes of counting the five taxable years in the carryback period for the NOL. [4]

The election is filed by taking the following steps:

A taxpayer must make the election described in this section 74.01(2) by attaching an election statement to the earliest filed, after this revenue procedure is effective, of:

(1) The Federal income tax return for the taxable year in which the NOL arises;

(2) The taxpayer’s claim for tentative carryback adjustment (Form 1045, Application for Tentative Refund; or Form 1139, Corporation Application for Tentative Refund) applying the NOL to a taxable year in the carryback period; or

(3) The amended Federal income tax return applying the NOL to the earliest taxable year in the carryback period that is not a section 965 year.[5]

As well, information must be attached to each amended return when this election is made:

A taxpayer making the election who claims a refund or credit as a result of the carryback of the NOL by filing amended Federal income tax returns for taxable years in the carryback period must also attach an election statement to each amended return. The election statement must state that the taxpayer is electing to apply §172(b)(1)(D)(v)(I) under Rev. Proc. 2020-24, the taxable year in which the NOL arose, and the taxpayer’s section 965 years. Once made, the election is irrevocable.[6]

The Notice also provides for when this election must be filed:

An election under this section 4.01(2) for an NOL arising in a taxable year beginning in 2018 or 2019 must be made no later than the due date, including extensions, for filing the taxpayer’s Federal income tax return for the first taxable year ending after March 27, 2020. For an NOL arising in a taxable year beginning after December 31, 2019, and before January 1, 2021, an election under this section 4.01(2) must be made by no later than the due date, including extensions, for filing the taxpayer’s Federal income tax return for the taxable year in which the NOL arises.[7]

Effect When a Loss is Carried to a §965 Year

If a taxpayer does not make the election to bypass the §965 years, the Notice explains what happens in those years.

To the extent an NOL is carried back pursuant to § 172(b)(1)(D)(i) to a section 965 year, the deemed election under §965(n) pursuant to § 172(b)(1)(D)(iv) may not be waived for that section 965 year (including if a taxpayer previously revoked an election under § 965(n) for that section 965 year pursuant to §1.965-7(e)(2)(ii)(B)). If the deemed election under § 965(n) applies to a section 965 year for which a taxpayer previously revoked or did not previously make an election under § 965(n), the deemed election shall only apply for purposes of the carryback of an NOL to such section 965 year.[8]

Consolidated Groups

Details of the application of these provisions to consolidated groups of corporations are found in Section 4.03 of the Notice.

[1] Revenue Procedure 2020-24, April 9, 2020, https://www.irs.gov/pub/irs-drop/rp-20-24.pdf, retrieved April 9, 2020

[2] Revenue Procedure 2020-24, Section 4.01(1)

[3] Revenue Procedure 2020-24, Section 4.01(2)(d)

[4] Revenue Procedure 2020-24, Section 4.01(2)(d)

[5] Revenue Procedure 2020-24, Section 4.01(2)(b)

[6] Revenue Procedure 2020-24, Section 4.01(2)(c)

[7] Revenue Procedure 2020-24, Section 4.01(2)(a)

[8] Revenue Procedure 2020-24, Section 4.02