The changes to the excess business loss rules aimed at freeing up much-needed cash could be enhanced by allowing the benefits to be claimed without filing an amended return, according to the American Institute of CPAs.
Businesses that claimed excess business losses for 2018 are able to get refunds now that the loss limits have been delayed under the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136), but some taxpayers need to amend their returns to do so, the AICPA noted in a June 22 letter to the IRS and Treasury.
The amended return process is often costly and could result in a lengthy review process by the IRS, so it would be helpful to allow affected taxpayers seeking refunds to do so by filing Form 1045, “Application for Tentative Refund,” the group said.
“Having a simplified option, without filing an amendment, to make the adjustment and allowing for a quicker refund would satisfy the goal of providing cash from tax refunds to taxpayers who may need the liquidity for their businesses,” the AICPA said.
The Tax Cuts and Jobs Act added section 461(l) as a revenue raiser; the Joint Committee on Taxation estimated (JCX-67-17) that the provision would raise almost $150 billion over 10 years. The provision limits the use of business losses against nonbusiness income at $250,000 for single individuals and $500,000 for joint filers. If an amount is disallowed in the year it’s incurred because of the limit, it can be carried forward and treated as a net operating loss in future tax years. The provision is set to expire at the end of 2025.
The CARES Act provided several avenues of financial relief to businesses and business owners, including delaying the effective date of section 461(l) to 2021. That sparked outrage from some in the tax community, who argued that delaying the loss limitation provision helped only the wealthy.
House Democrats included provisions in the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act (H.R. 6800) to put the loss limits back in place beginning in 2018. That bill passed the House in May, but it hasn’t been taken up by the Senate.
Now groups are asking for the loss limitation relief in the CARES Act to be streamlined so taxpayers can get their money as soon as possible. Another alternative suggested by the AICPA is for the government to grant automatic approval of a taxpayer’s Form 1040X, “Amended U.S. Individual Income Tax Return,” for the 2018 tax year, as long as the 461(l) item is the only change.
Also, as a result of the changes to section 461(l) in the CARES Act, some taxpayers have underpaid their estimated tax payments for the 2019 tax year because they can’t claim the NOL they anticipated in 2019, the group said. Therefore, the group asked for relief for estimated tax underpayment penalties and interest charges if they were related to the section 461(l) changes.