New NOL Carryback Guidance

The CARES Act allows taxpayers to carry back NOLs arising in taxable years beginning in 2018, 2019, and 2020 to the five preceding taxable years.  Carrying back NOLs will benefit many, but not all, taxpayers.  Importantly, a taxpayer may also waive the NOL carryback (and instead carry NOLs forward), or exclude from the carryback period any year in which they had income subject to the repatriation tax under Section 965 (which is imposed at a lower rate than the regular corporate tax).  Revenue Procedure 2020-24 provides that a taxpayer making either of these elections with respect to NOLs recognized in 2018 or 2019 must do so by the due date (including extensions) for the taxpayer’s federal income tax return for its first taxable year ending after March 27, 2020. 

The CARES Act also provides that if NOLs carried are back to a Section 965 inclusion year, the taxpayer is deemed to make a Section 965(n) election for the inclusion year, which limits the possibility that NOLs can offset the taxpayer’s Section 965 inclusions.   Revenue Procedure 2020-24 clarifies that this deemed election only affects the carryback of NOLs permitted under the CARES Act and does not affect the carryover of other NOLs to the same inclusion year.

The IRS also recently provided much needed guidance regarding carryback adjustments.   Notice 2020-26 grants taxpayers a six-month extension in which to apply for tentative carryback adjustments with respect to NOLs arising in taxable years beginning in 2018 and ending on or before June 30, 2019.  Revenue Procedure 2020-24 provides that taxpayers with NOLs arising in taxable years beginning before January 1, 2018, and ending after December 31, 2017 may apply for tentative carryback adjustments under Section 6411 if the application is filed by July 27, 2020.

The IRS has not yet addressed the interaction of the NOL carryback rules with the corporate alternative minimum tax (AMT).  For corporate taxpayers, carrying NOLs back to taxable years beginning before 2018 may give rise to new AMT liabilities and resulting tax credits.  Although these tax credits are refundable, obtaining a refund may require the taxpayer to file, and the IRS to process, additional amended tax returns.

 

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