FARM BUSINESSES RECEIVE IRS GUIDANCE
January 1, 2022 - Douglas Myser
Farm businesses receive IRS guidance. The IRS issued Revenue Procedure 2021-14, which gave instructions for taxpayers with a net operating loss (NOL), consisting entirely or partly of a "farming loss", as defined in Sec. 172 (b)(1)(B)(2), on how to make or revoke certain elections including those available under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136. For most taxpayers, the treatment of NOL's was changed by the law known as the Tax Cuts and Jobs Act, for NOLs arising in tax years beginning after Dec. 31, 2017, by limiting their amount allowed as a deduction in a tax year to 80% of taxable income with no carryback allowance as formerly. Farmers with substantial losses may seek Tax Relief. Any portion of an NOL that is a farming loss, however, could be carried back two years, which the taxpayer could elect to waive. Farm businesses receive IRS guidance.
The CARES Act suspended the 80% limitation for NOL's, including those consisting of or including farming losses arising in tax years beginning in 2018, 2019, or 2020, which may be carried back five years, with the two year carryback for farming losses not an option. However, the CARES Act was then amended by the COVID-Related Tax Relief Act (CTRA) of 2020 to allow taxpayers to elect to disregard those CAREA Act provisions for farming loss NOL's elections. For taxpayers making that election, the revenue procedure states consequences will result. The 80% limitation apolies to determine the amount of an NOL deduction for tax years beginning in 2018, 2019, or 2020, to the extent the deduction is attributable to NOLs arising in tax years beginning after Dec. 31, 2017. The CARES Act carryback provisions do not apply for NOLs arising in tax years beginning in 2018, 2019, or 2020. For example, the IRS said, if a taxpayer with an NOL that includes a farming loss in 2018 makes the CTRA election, only the farming loss portion can be carried back two years, and no portion that is not a farming loss may be carrried back (except for those of certain life insuracne companies, which have their own carryback provision.)