CARES Act Adds Flexibility to Net Operating Losses

Revenue Procedure 2020-24 provides guidance to taxpayers with net operating losses that are carried back under the CARES Act by providing procedures for:

• Waiving the carryback period in the case of a net operating loss arising in a taxable year beginning after Dec. 31, 2017, and before Jan. 1, 2021.
• Disregarding certain amounts of foreign income subject to transition tax that would normally have been included as income during the five-year carryback period.
• Waiving a carryback period, reducing a carryback period, or revoking an election to waive a carryback period for a taxable year that began before Jan. 1, 2018, and ended after Dec. 31, 2017.

In Notice 2020-26, the IRS grants a six-month extension to file Form 1045 or Form 1139, as applicable, with respect to the carryback of a net operating loss that arose in any taxable year that began during calendar year 2018 and ended on or before June 30, 2019. Individuals, trusts and estates would file Form 1045, and corporations would file Form 1139.

On April 8, 2020, the IRS issued Revenue Procedure 2020-23, allowing eligible partnerships to file amended partnership returns using Form 1065, U.S. Return of Partnership Income, by checking the "Amended Return" box and issuing amended Schedules K-1, Partner's Share of Income, Deductions, Credits, to each of its partners. Partnerships filing these amended returns should write "Filed Pursuant to Rev Proc 2020-23" at the top of the amended return.

Even under normal rules, net operating loss calculations are complex, so be sure to reach out for professional advice on how these new rules affect your business.