GUIDANCE ON NOL CARRYBACK ADJUSTMENTS

Guidance on NOL carryback adjustments. The has provided guidance on how taxpayers who want to elect to waive or reduce the new provision requiring taxpayers with net operating losses (NOLs) arising in tax years beginning in 2018, 2019, and 2020 to carry them back five years. (Rev. Proc. 2020-24) The IRS also extended the deadline for filing an application for a tentative carryback adjustment under Sec. 6411 to carry back an NOL that arose in any tax year that began during calendar year 2018 and that ended on or before June 30, 2019. Section 2303 (b) of the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act, P.L. 116-136, amended Sec. 172 (b)(1) to provide for a carryback of any NOL arising in a tax year in which the loss arises (carryback period) (Sec. 172(b)(1)(D). Sec. 172 (b)(3) permits a taxpayer entitled to a carryback period under Sec. 172(b)(1) to make an irrevocable election to relinquish the carryback period for an NOL for any tax year. Guidance on NOL carryback adjustments.

An election to waive Sec. 172 (b)(3) carryback for NOLs arising in tax years beginning in 2018 or 2019 must be made no late than the due date, including extensions, for filing the taxpayer’s federal income tax return for the first tax year ending after March 27, 2020. A taxpayer makes the election by attaching to its federal income tax return filed for the first tax year ending after March 27, 2020, a separate statement for each of the tax years 2018 or 2019 for which the taxpayer intends to make the election. The election statement must state that the taxpayer is electing to apply Sec. 172(b)(3) under Rev. Proc. 2020-24 and the tax year for which the statement applies.

The revenue procedure also explains how taxpayers that have an inclusion in income because of Section 965(a) in 2018, 2019, or 2020, can elect to exclude that year from the NOL carryback period. Those taxpayers may elect under Sec. 172(b)(1)(D)(v)(1) to excluse all Sec. 965 years from the carryback period for an NOL arising in a tax year beginning in 2018, 2019, or 2020.