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GAO Report Reveals Lagging NOL Carryback Use

Posted on Dec. 1, 2020

A government watchdog is recommending that the IRS make changes to its electronic business filing capabilities to help identify net operating loss carryback use under the Coronavirus Aid, Relief, and Economic Security Act.

In a November 30 report, the Government Accountability Office also identified other areas that need improvement following the implementation of federal relief efforts over the past year. Congress passed the CARES Act (P.L. 116-136), which allows businesses to carry back NOLs beginning in tax years 2018, 2019, and 2020 for up to five years. The provision came under fire from Democrats, who in subsequent relief measures have attempted to curtail the years in which losses can be carried back.

The IRS is unable to determine how effective the provision has been because of a delay in processing returns, according to the GAO. But the report also shows that only about 14,000 businesses applied for the carryback relief, with about two-thirds requesting refunds of less than $100,000.

Those numbers may change as the IRS processes more returns by allowing taxpayers to electronically file Form 1040 for tax year 2019, the GAO said. A complete report on the number of companies taking advantage of the provision and the dollar amounts will not be available until after tax year 2020 returns are processed in 2021.

The GAO recommended that Treasury and the IRS improve the tracking of economic impact payments made to taxpayers under the CARES Act. The report shows that 16.5 percent of nonfilers received payments after a widespread mailing campaign to make them aware of their eligibility for the $1,200 check.

Treasury and the IRS have agreed to look into the number of taxpayers that received a notification from the IRS and filed for an economic impact payment to improve ongoing outreach and communication efforts, according to the GAO.

The GAO also reported complaints associated with the paid leave program that provides businesses with a tax credit introduced under the Families First Coronavirus Response Act (P.L. 116-127). The program was one of the first relief measures created by Congress in the early stages of the COVID-19 pandemic, and it gave employers leeway to provide leave to their employees.

The Joint Committee on Taxation has estimated that the credits being administered by the IRS will lead to $172 billion in forgone revenue for fiscal 2020 to 2030, according to the report.

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