The 2020 Cares Act reinstated the five-year carryback rule for Net Operating Losses that were incurred after Dec. 31, 2017, and before Jan. 1, 2021. The intention was to provide speedy relief for corporations who had tax liabilities immediately preceding the pandemic.
Like many other pandemic provisions however, the oversight of the execution was minimal at best. Companies only needed to file Form 1139, Corporate Application for Tentative Refund to claim the carryback. Corporations had 12 months from the date the NOL was incurred to file the form and submit to the IRS for a refund.
Reports are now showing that the IRS approved the majority of the claims with little to no investigation as to their legitimacy. The IRS issued approximately $17 billion in refunds associated with the filing of the forms. In the few cases where the forms were examined by the IRS and refunds were reduced, the agent in charge of the investigation rarely took the necessary steps to actually recapture any over paid refunds.
The moral of the story?
Make sure you didn’t miss this tax advantage for your corporate clients. Where deadlines may have passed to file Form 1139, taxpayers have three years from the date that returns were originally due to amend. If your corporate clients are eligible to receive a benefit from an NOL carryback under these provisions, consider filing an amendment soon. Amendments for 2019 returns where 2020 NOLs would be carried back to that income are due by April 15, 2023.
NOL regulations have changed multiple times in the last five years, so they are candidly difficult to keep up with, especially if your practice is not completing a significant number of corporate returns. However, this is a rare opportunity to help put cash back in the hands of your clients.