Guidance has been posted on the IRS website in the form of questions and answers regarding the carryback of net operating losses for corporations under the CARES Act into years when the alternative minimum tax (AMT) was still in force.[1]

The Tax Cuts and Jobs Act (TCJA) repealed the corporate alternative minimum tax beginning in 2018 and removed the ability for taxpayers to carry losses from 2018 back into 2017 and earlier years. However, when the CARES Act added a provision allowing net operating losses from 2018-2020 to be carried back five years, these losses from years when the AMT no longer applied were being carried back to years when the AMT still applied to taxpayers. So what was the alternative tax net operating loss (ATNOL) for these years to carry back to those earlier years?

Nothing in the CARES Act explicitly addressed how taxpayers were to handle carrying these losses into years where the AMT applied. In the guidance, the IRS looked to provide an answer.

The first question provides a key answer—the ATNOL for any post-2017 year is zero:

Q1. A C corporation with an NOL arising in a taxable year beginning after December 31, 2017 (post-2017 year) is carrying back all or a portion of that NOL to a taxable year beginning before January 1, 2018 (pre-2018 year). Although the AMT does not apply to C corporations in post-2017 years, it does apply to such taxpayers in pre-2018 years. For purposes of determining the C corporation's alternative minimum taxable income in the pre-2018 year, what should be the amount of alternative tax net operating loss (ATNOL) arising in the post-2017 year?

A1. For Forms 1120X, Amended U.S. Corporation Income Tax Return, or 1139, Corporation Application for Tentative Refund, filed on or after June 1, 2020, treat the ATNOL amount arising in a post-2017 year as zero. The processing of the C corporation's refund may be delayed if it uses a different method to determine the amount of its ATNOL.

It is likely that many who had filed a Form 1139 or 1120X before this guidance was posted did not use zero as the ATNOL. But the IRS indicates that it does not want these taxpayers to take any action until and unless the IRS contacts the corporation.

Q2. A C corporation has already filed amended returns or a claim for tentative carryback adjustment carrying back an NOL from a post-2017 year to pre-2018 years, but did not treat the ATNOL for the post-2017 year as zero. Is the C corporation required to take any action, such as refiling, and follow this guidance?

A2. The C corporation does not need to take any action, or refile a Form 1120X or Form 1139 that was filed before June 1, 2020, unless contacted by the IRS.

Note that this change in AMT calculations will lead to an increase in minimum tax credit for years when the carryback leads to an increased minimum tax liability—a credit which likely will end up being refunded as described below. Under the TCJA these AMT NOLs would eventually be either absorbed in a later year or fully refunded, and the CARES Act accelerated those refunds, essentially allowing any unused AMT credit to be refunded in 2018 if the taxpayer elected to accelerate the refund. The remaining questions deal with these minimum tax credit issues.

The next two questions deal with the ability to net these changes and even recover the excess minimum tax credits on the Form 1139.

Q3. As a result of an NOL carryback, a C corporation either has an AMT liability in a pre-2018 carryback year or has released minimum tax credits (MTC) under section 53 in a pre-2018 carryback year because it no longer has enough regular tax liability to use them. The C corporation is not able to use the MTC generated or released by the NOL carryback in any taxable year prior to 2018. The C corporation made an election under section 53(e)(5) to recover 100% of its MTCs as refundable credits in its first taxable year beginning in 2018. May the C corporation claim both the NOL carryback and MTC refund for 2018 on the same Form 1139?

A3. Yes, the C corporation may file a single Form 1139, following the instructions in questions 11 and 12 of the temporary procedures to fax certain Forms 1139 and 1045 due to COVID-19.

Q4. As a result of an NOL carryback, the C corporation either has an AMT liability in a pre-2018 carryback year or it has released MTCs under section 53 in a pre-2018 carryback year because it no longer has enough regular tax liability to use them. The C corporation is able to use the MTC generated or released by the NOL carryback in a subsequent year that is part of the five-year carryback period preceding the year in which the NOL arose (the carryback period). May the C corporation claim both the NOL carryback and the decrease in tax liability from the MTC on Form 1139?

A4. Yes, if the MTC generated or released by the NOL carryback in one year in the carryback period is used in a subsequent year in the carryback period to reduce the C corporation's tax liability (as opposed to resulting in a refundable MTC), then the C corporation may claim a refund for any decrease in tax resulting from that use of the MTC on Form 1139, noting the change in the MTC in the appropriate column of line 21 for the year in which the MTC is used.

A taxpayer is not required to elect to receive the unused minimum tax credit back in a single year. But the page cautions that if the election is not made, the Form 1139 cannot be used to claim any refundable credit:

Caution: Form 1139 cannot be used to claim the refundable portion of the MTC (as opposed to a refund resulting from a reduction of the C corporation's tax liability due to the use of the MTC), except in the case of an election under section 53(e)(5). If a C corporation is entitled to a refundable MTC for a year in the carryback period for any reason other than an election under section 53(e)(5), it must separately file a Form 1120X to claim a refund of that portion of the MTC. For example, if a C corporation does not make an election under section 53(e)(5) to recover the full amount of its MTC in the first taxable year beginning in 2018, the C corporation may recover the portion of the MTC made refundable by section 53(e)(3) only by filing a Form 1120X.

Assuming the taxpayer has decided to make the election, the page goes on to give guidance on making the election:

Q5. A C corporation has refundable MTCs and wants to make the election under section 53(e)(5) to claim 100% of its refundable MTCs in its first taxable year beginning in 2018. How does the C corporation make this election?

A5. The election under section 53(e)(5) to claim 100% of a C corporation's refundable MTC in its first taxable year beginning in 2018 may be made by either filing a Form 1120X or a Form 1139. For either form used, the C corporation must include at the top of the form, "Electing to Take 100% Refundable Credit Amount in 2018 – per CARES Act Section 2305(b)". Instructions for completing the Form 1139 are available in questions 10, 11, and 12 of the temporary procedures to fax certain Forms 1139 and 1045 due to COVID-19.

The guidance ends by providing details on the deadline for making the election under IRC §53(e)(5) to claim 100% of any refundable credit in the first taxable year beginning in 2018:

Q6. Is there a due date by which a C corporation must make the section 53(e)(5) election?

A6. Yes. An election on Form 1139 must be filed no later than December 30, 2020. If the Form 1139 includes both a claim for refundable MTC and an NOL carryback that arose in a taxable year that began during 2018 and ended on or before June 30, 2019, the Form 1139 must be filed by the earlier of the extended due date provided under Notice 2020-26, or December 30, 2020. An election on Form 1120X must be filed within the period described under section 6511(a) that applies to the C corporation's first taxable year beginning in 2018.

[1] “Questions and Answers about NOL Carrybacks of C Corporations to Taxable Years in which the Alternative Minimum Tax Applies,” IRS website, May 27, 2020, https://www.irs.gov/newsroom/questions-and-answers-about-nol-carrybacks-of-c-corporations-to-taxable-years-in-which-the-alternative-minimum-tax-applies (retrieved May 29, 2020)