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The Coronavirus Aid, Relief, and Economic Security Act (CARES
Act), commonly referred to as Phase 3 of the federal
government's response to the coronavirus outbreak, was enacted
on March 27, 2020. See Ropes & Gray Alerts on CARES Act, and certain key tax provisions of CARES Act. The
CARES Act created opportunities for corporations to receive tax
refunds that otherwise may not have been available, and the chart
below describes certain procedures by which corporations can
request such refunds (subject to the notes below).
NOTE: The IRS recommended on April 8 that
taxpayers await further instruction from the IRS before utilizing
traditional processes to claim refunds under the CARES Act.
Additional information will be posted to irs.gov in the coming
Updated 4/13/20 -- The IRS announced temporary
procedures to accept FAX transmissions of
tentative refund claims (Form 1139), but at this time the IRS has
not identified any other corporate forms. https://www.irs.gov/newsroom/temporary-procedures-to-fax-certain-forms-1139-and-1045-due-to-covid-19
Updated 4/21/20 -- The IRS issued guidance
setting forth the methods to obtain refunds or credits for a
taxpayer that placed "qualified improvement property"
into service after Dec 31, 2017. (Rev. Proc. 2020-25)
Updated 4/30/20 -
The IRS confirmed in a webinar that Notice 2020-26 applies to
consolidated corporations in addition to stand-alone
How can a corporation get a refund for the 2018 or 2019
tax year (i.e., paid more tax than was due)?
Not yet filed federal income tax return:
- Quick refund (Form 4466)
- Generally, available to taxpayers who have overpaid estimated
taxes in the current year by at least 10% of the expected
liability, and at least $500.
- Generally, due after the end of the corporation's tax year,
and not later than the due date for filing the corporation's
tax return (not including extensions).
- Notice 2020-23 extends the filing deadline to July 15, 2020 for
a Form 4466 that would otherwise have to be filed on or after April
1, 2020, such as for calendar year 2019.
- Must be filed before the corporation files its federal income
tax return for the year.
- IRS will make a determination within 45 days from the date
application is filed.
Already filed federal income tax return:
- Amended Return (Form 1120X)
- Must be filed within three years after the date the corporation
filed its original return, or within two years after the date the
corporation paid the tax (if filing a claim for a refund),
whichever is later.
- Prior to the COVID-19 pandemic, it would typically take three
to four months for the IRS to process Form 1120X.
- The IRS has clarified in Rev. Proc. 2020-25 that an amended
return is one of two available avenues for a taxpayer to
retroactively obtain the benefit of immediate expensing of
"qualified improvement property."
- Form 3115 (Change in accounting method)
- Generally, under Rev. Proc. 2020-25, a taxpayer that placed
"qualified improvement property" (QIP) into service
during prior years may file for an accounting method change to
obtain the benefit of a corresponding section 481(a) adjustment
during the current taxable year, rather than in the applicable
- A corporation may use this approach to capture the prior-year
benefit of treating the QIP as 15-year depreciable property that
qualifies for 100% bonus depreciation rather than 39-year
- Under Rev. Proc. 2020-25, Form 3115 would be automatically
accepted by the IRS.
- During a webcast on 4/27/20, the IRS said taxpayers who already
filed 2019 tax returns could amend the 2019 return with an
accounting method change, rather than wait for a 2020 tax return or
amend two tax returns. This option would have to be executed within
six months of the 2019 return filing.
How does a calendar-year corporation carry back NOLs
under the CARES Act?
- First, file a corporate tax return (Form 1120) for the year
from which NOLs are to be carried back.
- Second, file one of the following:
- Tentative Refund (Form 1139)
- Notice 2020-26 granted an
additional 6 months to file Form 1139 making the new deadline no
later than 18 months after the close of the taxable year in which
an NOL arose for years beginning during the 2018 calendar year and
ending on or before June 30, 2019. The IRS has confirmed that the
Notice 2020-26 time extension also applies to consolidated
corporations. For years ending after June 30, 2019, the form
is due 12 months after the close of the year.
- IRS is required, to the extent practicable, to make a limited
examination of the refund claim within 90 days of filing the
application, but IRS has expressed doubt about whether 90 days will
be practicable under current circumstances.
- IRS retains the right to subsequently conduct a full audit,
which means the taxpayer could have to return the refund.
- IRS announced that it will accept FAXED
applications of Form 1139 beginning on 4/17/20.
- Amended Return (Form 1120X) (described above).
- Special rules apply to certain non-calendar year taxpayers and
taxpayers with foreign subsidiaries that have income inclusions
resulting from the Section 965 toll charge imposed by the 2017
TCJA. These rules are not discussed here.
What if a corporation desires not to carry back
- Taxpayers can elect not to carry back NOLs.
- Rev. Proc. 2020-24 describes the irrevocable election made by
attaching a separate statement for each year being waived (2018,
2019, or both) to the taxpayer's federal income tax return for
the first taxable year ending after 3/27/2020.
- The statement must say that the taxpayer is electing to apply
Section 172(b)(3) under Rev. Proc. 2020-24 and the taxable year for
which the statement applies.
- A separate decision on whether to waive the carryback can be
made for each year in which NOLs arise.
Originally published 30 April 2020
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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