Net Operating Loss Carrybacks Under the CARES Act
Traditionally a business that generated a loss could either carry the loss back two years in order to reduce the income previously reported or carry the loss forward. The 2017 Tax Cuts and Jobs Act amended the net operating loss rules by eliminating the ability to carry back net operating losses; net operating losses could only be carried forward. The 2017 act also limited the net operating loss deduction to 80% of taxable income and imposed certain limitations on pass through business entities.
The CARES Act temporarily suspends the application of the 2017 Act. For years beginning after December 31, 2017 and before January 1, 2021, a net operating loss can be carried back five years. The CARES Act also provides the taxpayer the ability to make certain elections with respect to the NOL carryback, and the election to exclude certain years. These provisions are beyond the scope of this article. The IRS has issued Revenue Procedure 2020-24 which addresses the manner for making these elections and can be reviewed here https://www.irs.gov/pub/irs-drop/rp-20-24.pdf The goal of temporarily suspending the NOL carryback rules and limitations is to produce refunds from prior years which the business taxpayer can access immediately.
In order to request a quick refund from the carryback of a net operating loss individuals file IRS Form 1045 and corporations file IRS Form 1139. The IRS has granted taxpayers a 6-month extension to file these forms and has issued several notices providing guidance. For more information refer to https://www.irs.gov/pub/irs-drop/n-20-26.pdf and https://www.irs.gov/pub/irs-drop/rp-20-23.pdf
Generally, these forms are required to be mailed to the IRS, however, the IRS began accepting these returns by fax on April 17, 2020. Only Forms 1045 and 1139 may be faxed to the IRS at 844-249-6236. The transmission is limited to 100 pages. Should additional information be required, the IRS will notify the taxpayer when the forms are being processed. Additional information regarding the submission of these forms can be found at https://www.irs.gov/newsroom/temporary-procedures-to-fax-certain-forms-1139-and-1045-due-to-covid-19