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Filing Date Extension for Quick Refund Claims Applies to Groups

Posted on Apr. 29, 2020

Practitioners wondering whether the extension for filing a quick tentative refund for 2018 applies to consolidated groups have been given an apparent green light, according to an IRS official’s comments.

Two IRS guidance documents issued April 9 concerning implementation of the net operating loss provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) created some confusion for consolidated groups.

That’s because the procedures for making an irrevocable election to waive the loss carryback period (Rev. Proc. 2020-24, 2020-17 IRB 1) explicitly applied to consolidated groups while the notice providing an extension for filing a tentative refund claim (Notice 2020-26, 2020-18 IRB 1) didn’t.

Rev. Proc. 2020-24 “is clear that it’s aimed at both stand-alone and consolidated taxpayers” because it says the term taxpayer includes a consolidated group and the term NOL includes a consolidated NOL, Brian Peabody of EY said during an April 28 webinar hosted by the District of Columbia Bar Taxation Community.

But Peabody noted that Notice 2020-26 doesn't have parallel language.

That guidance granted a six-month extension to file applications for a tentative carryback adjustment under section 6411 for NOLs that arose in tax years that began in calendar year 2018 and that ended on or before June 30, 2019.

Peabody pointed out that Rev. Proc. 2020-24 tells consolidated taxpayers to “consult” the notice. “I wouldn’t normally think that phraseology like ‘consult’ is an incorporation by reference provision, but maybe that’s what’s intended here,” he said.

“It does seem a little peculiar that these two pieces of guidance that came out together seem to, at least in the verbiage, decouple from their treatment of consolidated groups,” Peabody said, adding that he wouldn't have thought that was deliberate.

Justin Kellar, assistant to the branch 3 chief, IRS Office of Associate Chief Counsel (Corporate), said he appreciated that “Rev. Proc. 2020-24 does suggest that consolidated groups, because they are taxpayers under that piece of guidance, can consult Notice 2020-26” for how to file applications under section 6411(a).

“It’s my understanding that Notice 2020-26 does in fact apply to consolidated groups,” Kellar said.

“That seems like the logical outcome,” Peabody responded.

Quick Cash

Congress modified section 172 to address liquidity issues arising from the coronavirus 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 CARES Act also allows businesses to carry back losses arising in 2018 through 2020 for up to five years before the year of the loss.

Taxpayers that need cash quickly can take advantage of the expedited refund procedures for an NOL carryback by filing applicable forms: Individuals, trusts, and estates would file Form 1045, “Application for Tentative Refund,” and corporations would file Form 1139, “Corporation Application for Tentative Refund.” The IRS generally conducts a limited examination of those applications — which it is accepting via fax — and makes the resulting refunds within 90 days.

For NOLs arising in a tax year beginning January 1, 2018, and ending before March 27, 2019, the CARES Act didn’t provide additional time to file tentative carryback adjustment applications. That meant taxpayers that had losses in those tax years that could be carried back to an earlier year wouldn’t be able to take advantage of the expedited section 6411 tentative carryback adjustment procedure. Instead, they would generally be able to file amended returns to claim refunds resulting from the change in the law.

A calendar-year taxpayer with an NOL that arose in 2018 would normally have until December 31, 2019, to file the Form 1045 or Form 1139, but under Notice 2020-26 the taxpayer has until June 30 to file the applicable form.

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