In continued efforts to help taxpayers address the challenges brought on by the coronavirus (COVID-19) pandemic, the Internal Revenue Service announced further relief on April 9, including automatically extending deadlines for various filing and payment obligations and allowing tentative carryback refunds for net operating losses.
Internal Revenue Service (IRS) Notice 2020-23, an exercise of authority by the Treasury Secretary under 26 USC 7508A(a), “amplifies” prior relief under Notice 2020-18 (which itself superseded Notice 2020-17); extends more than 300 tax filing, payment, and administrative deadlines; and answers various questions not addressed by the IRS’s first set of answers to frequently asked questions (FAQs) on Notice 2020-18. Notice 2020-23 provides relief provisions benefiting a wide range of taxpayers and is a welcome addition to the relief already extended to taxpayers affected by the ongoing COVID-19 pandemic.
Additionally, to augment the relief provided by suspending net operating loss (NOL) limitations and increasing carryback periods for NOLs, the IRS announced in Notice 2020-26 a special rule allowing applications for tentative carryback refunds for periods that would otherwise be ineligible. This means taxpayers may utilize “quick refund procedures” for these years and receive cash refunds in no later than 90 days.
Notice 2020-23 Relief Provisions
The IRS automatically postponed to July 15, 2020 various filing and payment obligations due (originally or with a valid extension) on or after April 1, 2020 and before July 15, 2020, including the following:
- Calendar year and fiscal year corporate income tax payments and return filings
- Calendar year and fiscal year partnership and regulated investment company (RIC) returns and calendar year real estate mortgage investment conduit (REMIC) and real estate investment trust (REIT) income tax returns, including any schedules thereto
- Exempt organization business income tax and other payments and return filings on Form 990-T
- Estate and trust income tax payments and return filings
- Installment payments under Section 965(h)
- Quarterly estimated tax payments for individuals, corporations, and tax-exempt organizations
- Additional forms and schedules required to be filed as attachments to returns, including foreign information returns, such as Forms 3520, 5471, and 8865
This relief is automatic and taxpayers do not need to take additional action to receive it. Interest, penalties, and additions to tax will be suspended during the period April 1, 2020 through July 15, 2020. However, taxpayers who may require additional time beyond July 15, 2020 to file their returns may file the appropriate extension form by July 15, 2020. That extension will not extend the time to pay federal income tax beyond July 15, 2020, however.
Additionally, the IRS postponed to July 15, 2020 the filing date for all petitions with the United States Tax Court, a review of any decision by the United States Tax Court, and the filing of any claim for credit or refund or the bringing of any suit for credit or refund that was due to be filed on or after April 1, 2020 and before July 15, 2020.
Finally, Notice 2020-23 postpones for 30 days the due dates with respect to certain “time-sensitive government acts,” such as actions required to be taken in pending examinations and cases at the IRS’s Independent Office of Appeals, and reserves the right for further postponement, if needed. Notably, these acts include extending the time to assess any tax, file a lawsuit to collect tax, or allow any credit or refund.
Observations
- The payment and filing relief extended in Notice 2020-23 applies to persons with a federal tax payment or filing obligation due on or after April 1, 2020 and before July 15, 2020. Therefore, Notice 2020-23 does not cover the taxpayers with returns due on March 16, 2020, such as taxpayers filing Forms 1065 who did not file a request for extension of this filing.
- The relief provided in Notice 2020-23 expressly extends to quarterly estimated income tax payments due between April 1, 2020 and July 15, 2020. Therefore, any taxpayers with estimated tax payment obligations during this period—such as first and second quarter 2020 estimated income tax payments—qualify for relief under Notice 2020-23. As it now stands, such taxpayers might have two payment obligations on July 15, 2020—for the first and second quarters of 2020.
- If taxpayers still cannot file their 2019 income tax returns by the new July 15, 2020 deadline, they may request a further extension by filing Form 4868 (individuals) or Form 7004 (businesses, including trusts). Importantly, such extensions apply only to filing tax returns (not payment of tax). The FAQs note that such extension requests are due by July 15, 2020, but would allow for an extension of six months from the original due date, i.e., an extension to October 15, 2020 based on an original due date of April 15, 2020.
- While taxpayers now have until July 15, 2020 to file Tax Court petitions or to bring suit for refund claims for filings due between April 1, 2020 and July 15, 2020, the notice expressly does not extend relief for petitions or refund suits with filings that expired prior to April 1, 2020. This may cause hardship for taxpayers whose petitions were returned once the Tax Court closed on March 19, 2020. Any affected taxpayers may need to rely on principles from Guralnik v. Commissioner, 146 T.C. 230 (2016), to avoid jurisdictional challenges in Tax Court.
- Notice 2020-23 includes in its definition of “specified time-sensitive action” the actions listed in Revenue Procedure 2018-58, 2018-50 IRB 990 (Dec. 10, 2018), which include changes to classification elections made by filing Form 8832 and elections under Section 338 made on Form 8023. Any action listed in Revenue Procedure 2018-58 with a due date falling between April 1 and July 14, 2020 is extended to July 15, 2020. To the extent possible, taxpayers may want to consider whether they are able to undertake these actions within the original due date and do so. For actions identified in Revenue Procedure 2018-58 that had a due date prior to April 1, those due dates were not extended by this notice.
- Notice 2020-23 also includes as a specified time-sensitive action any investment by a taxpayer in a qualified opportunity fund (QOF) during the 180-day period described in Section 1400Z-2(a)(1)(A) of the Internal Revenue Code. If such 180-day period would have expired after April 1, 2020 and before July 15, 2020, the 180-day deadline for making the investment of eligible gains in a QOF will be automatically extended to July 15, 2020.
Notice 2020-26 Tentative Carryback Refunds
Under the CARES Act, a taxpayer has opportunities for greater utilization and carryback of NOLs arising in 2018, 2019, and 2020. Notice 2020-26 extends the deadline for filing an application for a tentative carryback adjustment, a procedure that allows a taxpayer to obtain a quick tentative tax refund from an NOL carryback by providing a refund within 90 days of filing the application.
This relief extends to taxpayers with a carryback of NOLs that arose in any taxable year that began during calendar year 2018 and that ended on or before June 20, 2019. This means that taxpayers who might otherwise be time barred to utilize this procedure now may be eligible to take advantage of it. Taxpayers now have a six-month extension to file Form 1045 or Form 1139, as applicable.
Observations
- Allowing taxpayers with NOLs generated in 2018 to carry back to one or all of the prior five years and file a tentative carryback refund application puts cash more quickly into the hands of taxpayers who need it due to COVID-19 exigencies.
- Taxpayers cannot file for a tentative carryback adjustment until the appropriate income tax return for the loss year has been filed. Therefore, taxpayers must first ensure that the appropriate income tax return reporting the loss has been filed with the IRS before applying for a tentative carryback adjustment.
- As part of the limited electronic signature opportunities due to the COVID-19 pandemic, the IRS has allowed for limited filing of Forms 1139 and 1045 using fax. Starting on April 17, 2020 and until further notice, the IRS will accept Forms 1139 submitted via fax at 844-249-6236 and Forms 1045 submitted via fax at 844-249-6237. The IRS outlined this process in an April 13, 2020 press release.
- As it is an action listed in Revenue Procedure 2018-58 with a due date falling between April 1 and July 14, 2020, the IRS extended the deadline to file Form 4466, Corporation Application for a Quick Refund of Overpayment of Estimated Tax, which ordinarily must be filed by April 15, 2020, with respect to calendar year 2019. However, to the extent a taxpayer has overpaid estimated taxes for 2019 and wishes to get those back quickly, they may not want to wait to file Form 4466.
- Clients would be well advised to carefully consider the impact that additional NOL deductions may have with respect to their previously reported tax liability under Code Section 965 (transition tax), as well as their ongoing tax liability under and exposure to Code Sections 59A (Base-Erosion Anti-abuse Tax (BEAT)) and 951A (Global Intangible Low-Taxed Income (GILTI)). The interplay between these provisions and the new NOL provisions introduced under the CARES Act have the potential to produce anomalous (perhaps even unfavorable) and unexpected outcomes.
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Contacts
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Washington, DC
Jennifer Breen
Sheri A. Dillon
Richard C. LaFalce
Boston
Daniel A. Nelson
Meghan E. McCarthy
New York
Sarah A. Nelson
Chicago
Thomas V. Linguanti
San Francisco
Sarah-Jane Morin
Silicon Valley
Barton W.S. Basset