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TCJA-Inconsistent Positions Being Flagged by IRS

Posted on Nov. 18, 2020

The IRS is transitioning from implementing guidance for the Tax Cuts and Jobs Act to compliance and enforcement, which includes analyzing taxpayers’ positions taken on returns that are inconsistent with published guidance, an agency official said.

The government plans to finalize most of the proposed regulations implementing the TCJA by year-end as the IRS continues its transition from a regulation-writing mind-set “to an examination-field advice, and in some corners, a litigation mind-set,” IRS Chief Counsel Michael Desmond said November 17. 

Speaking during an American Institute of CPAs online conference, Desmond said the IRS’s associate offices and field counsel have been working to enable that transition. 

“We’ve started to see many TCJA provisions being reported on tax returns,” Desmond said, noting that large corporate taxpayers under the compliance assurance process program have had TCJA-related issues subject to examination. 

Some taxpayers filing returns have indicated on a Form 8275, “Disclosure Statement,” that they will “take a position inconsistent with our published guidance, so those are obviously getting flagged and analyzed,” Desmond said. He also noted that some taxpayers have made public statements regarding their positions on following the TCJA regulations. 

“There will be a lot of public attention on a very small number of taxpayers in a very small corner of the TCJA world on not following guidance,” Desmond said. “We do defend all of the guidance that we’ve put out, and [we] stand by it.”

More broadly as part of TCJA enforcement and compliance, Desmond said that IRS field counsel attorneys “will be advising audit teams beyond the CAP context as we move into other corporate and individual examinations in the months and years to come.” 

COVID-19 Relief Provisions

Issues involving the business provisions under the Coronavirus Aid, Relief, and Economic Security Act (P.L. 116-136) regarding alternative minimum tax credits and net operating loss carrybacks will arise in 2021, Desmond said.

The TCJA amended section 172 to, in most circumstances, eliminate NOL carrybacks, limit NOLs to 80 percent of taxable income, and allow carryforwards indefinitely. Pre-TCJA, most taxpayers could generally carry back losses for two years and forward for only 20 years.

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 law also allows companies to carry back losses arising in tax years beginning in 2018 through 2020 for up to five years before the year of the loss.

Desmond pointed out that guidance that was underway regarding the TCJA amendments to the section 172 NOL rules was modified for the changes in the CARES Act

There's “more to be seen on the [IRS] operations side going into the next filing season, as taxpayers start to take the losses that they incurred as a result of the COVID pandemic into 2020 and report those on returns that will be filed next year,” Desmond said, adding that more guidance from the chief counsel's office may also be coming.

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