New FAQs on Carryback of Net Operating Losses Under the CARES Act
Last week, the IRS released FAQs regarding the carryback of post-2017 net operating losses (“NOLs”) to taxable years in which the alternative minimum tax (“AMT”) applies.
The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act allowed the carryback of any NOL arising in a taxable year beginning after December 31, 2017 (a “post-2017 year”), and before January 1, 2021, to each of the five taxable years preceding the taxable year in which the loss arose. The ability to carry back post-2017 NOLs had been eliminated by the Tax Cuts and Jobs Acts (“TCJA”). Additionally, the TCJA repealed the AMT for corporations for years beginning on or after January 1, 2018.
The new FAQs address the question of what happens when a corporation carries back an NOL from a post-2017 year to an earlier year in which the AMT existed. The IRS explains that a corporation should consider the AMT NOL amount arising in the post-2017 year as zero. This will result in more AMT in the carryback years.
While this treatment applies to carrybacks of all NOLs, for those amended returns and claims filed on or before June 1, 2020, there is no need to refile or make any changes unless contacted by the IRS.
The FAQs also address the situations in which a corporation generates minimum tax credits (“MTCs”) because it creates an AMT liability or has released previously generated MTCs under section 53 in a carryback year. The FAQs explain that if MTCs are generated or released in the carryback period, but the corporation is able to use them in a subsequent year that is part of the five-year carryback period, the corporation may claim both the NOL carryback and the decrease in tax liability from the MTCs on the same Form 1139.
Additionally, if at the end of the carryback period, the corporation is not able to use the MTCs released by the NOL carryback in any taxable year beginning before January 1, 2018, it may make an election to recover 100 percent of its MTCs as refundable credits in the first taxable year beginning on or after January 1, 2018. In that case, the corporation may file a single Form 1139 to claim both the NOL carryback and the MTC refund for 2018.