2018 1120 with NOL

Technical topics regarding tax preparation.
#1
swgordon  
I have a client that has not filed 2018 or 2019 1120. We prepared 2018 and they have an NOL. There is net income in 2019.

If I read things correctly, it appears that I can forgoe the carryback to 2013 and instead report the NOL on the 2019 return.

All I have to do is make an election and file it with the 2020 return. Is this correct?
 

#2
dave829  
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In Rev. Proc. 2020-24, the IRS extended the deadline to April 15, 2021 (the due date for an 1120 return for a year ending after March 27, 2020) to make the election to waive the carryback period for an NOL sustained in either 2018 or 2019.

https://www.irs.gov/pub/irs-drop/rp-20-24.pdf

Suggest that you specify this Rev. Proc. on the election form.
 

#3
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If the 2018 return is late, I don’t believe you can make any elections with it since it is not a timely filed return. But it still wouldn’t hurt to try if that would in fact be helpful. I’d be curious to know why carrying the NOL carry back wouldn’t be a better answer, unless the number is small enough that the administrative cost is higher than the tax benefit.
 

#4
dave829  
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HenryDavid wrote:If the 2018 return is late, I don’t believe you can make any elections with it since it is not a timely filed return.

I disagree. There is no requirement in Rev. Proc. 2020-24 to file the 2018 return timely.
 

#5
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From the rev proc

“A taxpayer must make an election described in this section 4.01(1) by attaching to its Federal income tax return filed for the first taxable year ending after March 27, 2020, a separate statement for each of taxable years 2018 or 2019 for which the taxpayer intends to make the election.”

Doesn’t sound to me like that would be the 2018 tax return...you’d make the election per the rev proc
 

#6
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HenryDavid wrote:From the rev proc

“A taxpayer must make an election described in this section 4.01(1) by attaching to its Federal income tax return filed for the first taxable year ending after March 27, 2020, a separate statement for each of taxable years 2018 or 2019 for which the taxpayer intends to make the election.”

Doesn’t sound to me like that would be the 2018 tax return...you’d make the election per the rev proc


Agree.
An election to forego an NOL carryback must be made on a timely filed return. IMO, the election to forego the carryback on 2018 or 2019 returns that had already been filed may be included on the next filed return (2020, if calendar year), per the RP.
Losing the ability to make certain elections has always been the risk of filing late.
~Captcook
 

#7
dave829  
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CaptCook wrote:An election to forego an NOL carryback must be made on a timely filed return.

Normally, I would agree, because that’s what 172(b)(3) says. But the CARES Act added section 172(b)(1)(D) to provide a special rule for NOLs arising in 2018, 2019 or 2020. And 172(b)(1)(D)(v)(II) says:
(II) TIME OF ELECTIONS.---An election under paragraph (3) (including an election described in subclause (I)) with respect to a net operating loss arising in a taxable year beginning in 2018 or 2019 shall be made by the due date (including extensions of time) for filing the taxpayer’s return for the first taxable year ending after the date of the enactment of this subparagraph.

“paragraph (3)” refers to 172(b)(3).

So, the election to waive the carryback period for an NOL arising in 2018 doesn’t have to be made on a timely-filed 2018 return. The election to waive the carryback period for an NOL arising in 2018 can be made on a timely-filed 2020 return under this special rule. This is exactly what Rev. Proc. 2020-24 says:
(1) Elections to waive carryback under §172(b)(3) for NOLs arising in taxable years beginning in 2018 or 2019. A taxpayer within the scope of this revenue procedure may elect under § 172(b)(3) to waive the carryback period for an NOL arising in a taxable year beginning in 2018 or 2019. Such an election must be made no later than the due date, including extensions, for filing the taxpayer’s Federal income tax return for the first taxable year ending after March 27, 2020. A taxpayer must make an election described in this section 4.01(1) by attaching to its Federal income tax return filed for the first taxable year ending after March 27, 2020, a separate statement for each of taxable 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 § 172(b)(3) under Rev. Proc. 2020-24 and the taxable year for which the statement applies. Once made, the election is irrevocable.
 

#8
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agreed - make the election on the 2020 return, NOT the late 2018 return

or do both, for what it's worth (probably nothing on a late 2018 return)
 

#9
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If the 2018 return had been timely filed, there was no such thing as an election to forego the carryback at that time.
Scratch that. Faulty memory.
 

#10
dave829  
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sjrcpa wrote:If the 2018 return had been timely filed, there was no such thing as an election to forego the carryback at that time.
Scratch that. Faulty memory.

No, you're correct. Up until the CARES Act was enacted in March 2020, a 2018 NOL was required to be carried forward. The TCJA amended 172(b)(1)(A) to eliminate the 2-year carryback starting in 2018. The CARES Act enacted a 5-year carryback for NOLs sustained in 2018, 2019 or 2020. Very confusing.
 

#11
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dave829 wrote:
sjrcpa wrote:If the 2018 return had been timely filed, there was no such thing as an election to forego the carryback at that time.
Scratch that. Faulty memory.

No, you're correct. Up until the CARES Act was enacted in March 2020, a 2018 NOL was required to be carried forward. The TCJA amended 172(b)(1)(A) to eliminate the 2-year carryback starting in 2018. The CARES Act enacted a 5-year carryback for NOLs sustained in 2018, 2019 or 2020. Very confusing.


A taxapayer could still have elected out under the TCJA rules. There were certain provisions that remained in place under the TCJA that allowed for carrybacks of very specific (i.e., rare) NOLs. But I would not have recommended to any clients, prior to the CARES Act, to elect out for 2018 under the more-common scenarios contemplated by the TCJA.
 

#12
dave829  
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HenryDavid wrote:A taxapayer could still have elected out under the TCJA rules.

I can't find that provision. Can you point me to a Code section?
 

#13
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You’d have to find the pre-CARES section 172, but this article mentions the specific losses that were eligible for carry back. For most taxpayers, no impact. But I misspoke, there was probably no ability to elect out of carryback for all other NOLs under the TCJA (the election would only have applied to those specific NOLs available for carryback).

https://www.journalofaccountancy.com/is ... osses.html
 

#14
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I know farm losses were still eligible to carryback.
~Captcook
 

#15
swgordon  
Thanks this was very helpful. The reason that I want to carry it forward is that it is only $20k. The cost to amend the prior year doesn't make sense. Plus in the prior year he was only in the 15% bracket. For 2019 he is in 21% so better for him.
 


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