Businesses Can Access Cash Now Under CARES Act

| 4/21/2020
Businesses Can Access Cash Now Under CARES Act

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) modifies several provisions enacted by the Tax Cuts and Jobs Act of 2017 (TCJA) to put cash in the hands of businesses. These modifications permit taxpayers to claim favorable adjustments in prior taxable years and accelerate deductions available in the current year.

For instance, the CARES Act modifies the net operating loss (NOL) carryback rules, including:

  • Providing a five-year carryback for tax years beginning in 2018, 2019, and 2020 
  • Providing a two-year carryback for fiscal year businesses with tax years beginning in 2017 and ending in 2018
  • Extending the time for taxpayers with taxable years beginning before Jan. 1, 2018, and ending after Dec. 31, 2017, to file Form 1139, “Corporation Application for Tentative Refund,” for NOL carrybacks

In addition, the CARES Act accelerates refunds of the remaining corporate alternative minimum tax (AMT) credit to 2019 and allows a corporation to elect to recover any remaining corporate AMT credit in 2018.

To get the most out of these changes, taxpayers will need to determine the quickest and most efficient way to access the tax benefits.

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Guidance on NOL carrybacks

Revenue Procedure 2020-24 provides additional guidance on the NOL and AMT credit provisions of the CARES Act. Specifically, it spells out rules for making an election to waive the carryback period for an NOL arising in a taxable year beginning in 2018 or 2019; making an election to exclude tax years affected by the Section 965 transition tax from the carryback period for an NOL that arises in a taxable year that begins in 2018, 2019, or 2020; and filing Form 1139 for taxable years beginning before Jan. 1, 2018, and ending after Dec. 31, 2017. The revenue procedure does not provide guidance with respect to modifications of elections to waive carryback of an acquired subsidiary’s net operating losses to the seller’s consolidated group.

Tentative refund claims

Generally, taxpayers can file Form 1139 on or after the date the return for the year in which the NOL arose is filed and within 12 months of the close of the taxable year in which the NOL arose. Individuals use Form 1045, “Application for Tentative Refund,” to file a tentative claim. The IRS can deny a claim within 90 days, and claims of more than $5 million are subject to post-payment review by the Joint Committee on Taxation.

To account for the fact that the due date for filing an NOL carryback claim might have expired prior to the date of enactment of the CARES Act, Notice 2020-26 provides a six-month extension to file Form 1139 claims for NOLs that arose in a taxable year that began during the 2018 calendar year and that ended on or before June 30, 2019. The notice also provides that a single tentative refund claim can be used to claim the NOL carryback and the AMT credit; however, the additional six-month extension of time to file an NOL carryback claim provided in Notice 2020-26 does not apply to the AMT credit claim. In addition, Revenue Procedure 2020-24 includes a special rule for taxpayers with tax years beginning before Jan. 1, 2018, and ending after Dec. 31, 2017, that delays until July 27, 2020, the deadline to file the Form 1139. 

Because Form 1139 is filed on paper and the IRS has suspended processing of paper returns due to the COVID-19 emergency, the IRS provided a temporary procedure for Form 1139s and 1045s to be filed by fax. The fax line opened April 17, 2020, and a 100-page limit applies.

By allowing taxpayers to file Form 1139s by fax, the IRS provides a means for taxpayers to immediately request the cash made available under the NOL and AMT provisions of the CARES Act. However, challenges to quickly obtaining this cash remain. For instance, the tax return for the tax year to which a Form 1139 relates must be processed before the IRS will process the Form 1139. Because paper tax returns are not being processed, these returns need to be electronically filed. Additionally, original taxpayer signature requirements for tax returns and related forms seem to be in place still, which could delay and complicate the process of filing a tax return and the Form 1139. 

Quick refunds of overpaid estimated tax for 2019

Increased deductions for 2019 available under the CARES Act also might mean that many taxpayers will have overpaid their estimated tax for 2019. Taxpayers can file a Form 4466, “Corporation Application for Quick Refund of Overpayment of Estimated Tax,” to claim a quick refund of overpaid 2019 estimated taxes. Form 4466 normally must be filed after the close of the taxable year to which the estimates relate and before the 15th day of the fourth month following the close of the taxable year. Notice 2020-23 extends until July 15, 2020, the due date for Form 4466s due on or after April 15, 2020, and before July 15, 2020. However, because Form 4466 can be filed only on paper and the IRS has suspended processing paper documents, Form 4466 filings will not be processed quickly. Therefore, even though the due date for filing Form 4466 has been extended, electronically filing a return claiming a refund might be a quicker way to get a refund. 

Looking forward

The U.S. Department of the Treasury and the IRS continue to provide guidance on these and other provisions under the CARES Act. Taxpayers should work with their advisers to determine the most efficient and quickest way to access cash under the CARES Act. 

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Go to the Crowe COVID-19 resource center for more analysis and updates.

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Rochelle Hodes
Rochelle Hodes
Principal, Washington National Tax
Dave Strong - social
David Strong
Managing Director
Howard Wagner - social
Howard Wagner
Partner, National Tax Services