The IRS has provided additional guidance for taxpayers who are amending tax returns but also seeking tentative refunds for net operating loss deductions and alternative minimum tax credits.
According to the IRS’s updated April 30 FAQ, taxpayers who need to file amended returns via mail delivery before seeking tentative refunds can still timely file hard copies of quick refund applications by using normal procedures and adhering to the extended filing deadlines.
Those taxpayers aren’t eligible for the IRS’s temporary fax procedures that apply to some quick refund claims that stem from two provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136): AMT credits and NOL deductions.
Claims that are filed on Form 1139, “Corporation Application for Tentative Refund,” or Form 1045, “Application for Tentative Refund,” for individuals, trusts, and estates, qualify for digital transmission, which the IRS started accepting April 17. The IRS established the temporary procedures “to process these forms while normal operations are closed due to the pandemic.”
But the IRS previously advised taxpayers that “if your Form 1139 does not match your IRS account, the Form 1139 cannot be processed” because Form 1120-X, “Amended U.S. Corporation Income Tax Return,” must be processed first.
The IRS updated that statement (FAQ No. 9) to reflect the same requirement for filers of Form 1045 — that they must first file Form 1040-X, “Amended U.S. Individual Income Tax Return.”
Taxpayers amending returns by filing Form 1120-X electronically can use the temporary fax procedures for Form 1139 using the amended amounts. However, FAQ No. 16 also states that the IRS won’t be able to process the tentative refund application until the amended return has been processed and reflected in the taxpayer’s account.
“The timeframe for processing the Form 1120-X and adjusting the account depends on the particular taxpayer’s circumstances,” the IRS said, adding that after its normal mailing operations are resumed, taxpayers will be notified if accounts haven’t been adjusted and the IRS is unable to process the Form 1139.
No Faxing Allowed
While some practitioners said they hoped the IRS would consider fax procedures for Form 1040-X because it was silent in prior guidance, the IRS emphatically said no in an updated answer to FAQ No. 8. The IRS had previously said that it wouldn’t be establishing fax procedures for corporate amended returns without mentioning any other forms.
The IRS also pointed out that organizations seeking a tentative refund for either an NOL carryback or an AMT credit associated with a previously filed Form 990-T, “Exempt Organization Business Income Tax Return,” aren’t eligible for the temporary fax procedures.
Those taxpayers must mail an amended return following normal instructions and “may attach a Form 1139 or 1045 to the amended Form 990-T to show the computation of the refund claim.”
Processing Faxed Refunds
When can taxpayers expect to see a refund for faxed requests for NOL carrybacks and AMT credits?
The IRS noted the statutorily required processing time of 90 days in FAQ No. 17 and said it is “working to process these refunds as quickly as possible, with limited staffing, managing the volumes and adjusting to processing these refunds in a remote work environment.”
The CARES Act modified section 172 to address liquidity issues arising from the COVID-19 pandemic by temporarily repealing the 80 percent NOL limitation and allowing deductions for loss carryovers and carrybacks to fully offset taxable income for tax years beginning before January 1, 2021.
The new law also allows companies to carry back losses arising in tax years from 2018 to 2020 for up to five years before the year of the loss.
With the Tax Cuts and Jobs Act’s (P.L. 115-97) repeal of the corporate AMT, Congress allowed companies to offset their regular tax liability by the amount of the AMT credit. Under section 53(e), credits remaining at the end of tax years from 2018 to 2020 are refundable in an amount equal to 50 percent of the excess of the AMT credits over the regular tax liability for the tax year. Remaining amounts of AMT credits are fully refundable for tax years beginning in 2021.
The CARES Act accelerated the recovery of the AMT credits by allowing companies to claim refunds on the remaining credits in 2018 or 2019.