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Election by Taxpayers with 2018-2020 Farming Losses to Disregard Cares Act NOL Rules

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

In a Revenue Procedure, IRS has set out how taxpayers that have a net operating loss (NOL) for any tax year that begins in 2018, 2019, or 2020, all or a portion of which consists of a farming loss, can elect to not apply certain NOL rules contained in the Coronavirus Aid, Relief and Economic Security Act (CARES Act; PL 116-136), how they can revoke a related election, and how the consolidated group rules affect those actions.

Background.

The Tax Cuts and Jobs Act (TCJA, PL 115-97) amended Code Sec. 172(a)(2) to provide that, with regard to NOLs arising in a tax year beginning after December 31, 2017, the amount allowed as a net operating loss deduction, as defined in Code Sec. 172(a) (NOL deduction), cannot exceed 80% of the taxable income of the taxpayer computed without regard to any NOL deduction (80% limitation).

Section 13302(b) of the TCJA amended Code Sec. 172(b)(1) to generally eliminate NOL carrybacks. However, Section 13302(c)(1) of the TCJA amended Code Sec. 172(b)(1) to provide a two-year carryback period for the portion of an NOL that is a farming loss. Section 13302(c)(1) of the TCJA further amended Code Sec. 172(b)(1) to provide that taxpayers entitled to this two-year carryback period may make an irrevocable election to waive it. (Code Sec. 172(b)(1)(B)(iv))

In addition, Code Sec. 172(b)(3), which predates the TCJA amendments, separately provides that any taxpayer entitled to an NOL carryback period under Code Sec. 172(b)(1) may irrevocably elect to relinquish the entire carryback period with respect to that NOL for any tax year.

Section 2303(a) of the CARES Act amended Code Sec. 172(a) to provide that the 80% limitation applies only to NOLs arising in tax years beginning after December 31, 2017, that are deducted in tax years beginning after December 31, 2020.

Section 2303(b) of the CARES Act amended Code Sec. 172(b)(1) to provide a five-year carryback period for any NOL arising in a tax year beginning after December 31, 2017, and before January 1, 2021.

Section 2303(e)(1) of the CARES Act provides that a taxpayer with a farming loss NOL for any tax year beginning in 2018, 2019, or 2020, may make an election to disregard the amendments made by sections 2303(a) and (b) of the CARES Act.

IRS sets out specifics on making the election, etc.

IRS has set out how to make the election under Sec. 2303(e)(1) of the CARES Act, when a taxpayer is deemed to have made that election, how to to revoke an election made under Code Sec. 172(b)(1)(B)(iv) or Code Sec. 172(b)(3) to waive the two-year carryback period for the farming loss portion of an NOL incurred in a tax year beginning in 2018 or 2019, and how consolidated group rules affect these actions.

Checkpoint will provide additional information about the Revenue Procedure in a future Federal Tax Update.

To continue your research on special election to waive CARES Act changes to NOL rules for farming losses arising in tax years beginning in 2018, 2019 and 2020, see FTC 2d/FIN ¶ M-4312.1.

 

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