IRS Pushed to Clarify Timing Issue With Loss Carryback Revival

April 16, 2020, 8:51 PM

Accounting firms are pressing the IRS to clarify that a business-friendly part of the latest coronavirus relief package won’t effectively slow down newly-available corporate refunds.

The law (Public Law 116-136) temporarily rolled back the 2017 tax law’s limit on the use of net operating losses as tax breaks. The provision, one of several ways lawmakers tried to help businesses boost their liquidity during the pandemic, allows corporations to offset taxable income by carrying losses back as far as five years if they arose in 2018, 2019, or 2020.

The now-defunct corporate alternative minimum tax—a parallel tax system meant to ensure companies didn’t go overboard when using write-offs to whittle down their taxable income—could complicate this process. The 2017 tax law repealed the corporate AMT, effective for tax years starting after 2017, and provided refunds of companies’ alternative minimum tax credits.

Using losses to offset income in the years during which the AMT was still in place could create a new tax liability and a resulting refundable credit, tax professionals said. To get refunds for these new credits, companies would have to file amended returns, which can take longer for the IRS to process and respond to than the traditional form for carrying back losses.

“The question is, can the IRS provide clarification that that’s actually how it’s going to work?” said Miri Forster, a principal at EisnerAmper LLP in Iselin, N.J.

It is unclear whether the new credit refunds can go on the same form as the losses, and whether the losses will trigger the alternative minimum tax in the first place, tax professionals said.

“It’s kind of just a timing issue, but it does delay getting your cash back,” said Christine Turgeon, a partner at PwC in Washington.

PwC raised the issue to officials prior to the April 9 release of IRS guidance on the law’s loss provision, but the guidance was silent on it, Turgeon said.

The IRS didn’t respond to a request for comment on the issue.

But Al Cappelloni, a partner at RSM US LLP in Boston, said a partner from his firm is scheduled to speak with government officials tomorrow about whether the credit refund can be claimed using the same form that is used for the loss refund, which would allow companies to get their full loss refunds more quickly.

“I would expect that we’ll be able to get an answer from them, and that they may address that,” he said.

To contact the reporter on this story: Lydia O'Neal in Washington at loneal@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Colleen Murphy at cmurphy@bloombergtax.com

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