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Authored by Michael Wronsky

The Coronavirus Aid, Relief, and Economic Security (CARES) Act sought to provide taxpayers liquidity by altering and/or deferring the application of some of the significant revenue raisers from the Tax Cuts and Jobs Act (TCJA). Many of these changes as well as the technical correction of the “retail glitch” affecting qualified improvement property are retroactive. While the relief is certainly welcome, the fact that many areas of the tax law changed with retroactive effect creates a host of complexities in terms of both how the altered provisions can interact and from a compliance standpoint.  

Amending tax returns or filing for accounting method changes will be required not only to take advantage of these new rules, but also to correct positions taken on originally filed returns that are no longer valid. This can be problematic for partnership taxpayers subject to the centralized partnership audit regime (CPAR) as they are generally prohibited from filing amended returns. To accommodate for this, the IRS provided guidance allowing these partnerships to file amended returns for a limited time. Otherwise, their only option would have been to file an administrative adjustment request (AAR), a more cumbersome procedure that has the potential to produce disadvantageous results for the partners, depending on their respective tax situations. 

Usually, taxpayers have the longer of either three years from the date an original return is filed or two years from the payment of the corresponding tax to amend for a refund. However, given the IRS has had to provide temporary clearance from certain procedural hurdles (such as the partnership issue described above), time-sensitive action is required of taxpayers in some instances. Below is a list of upcoming deadlines (excluding the July 15, 2020, deadline to comply with most federal filing and payment obligations discussed in our previous tax alert):  

  • June 30, 2020 – the CARES Act allows a net operating loss (NOL) arising in the 2018, 2019 or 2020 tax years to be carried back to the five preceding tax years for a refund. Taxpayers who wish to carry back a 2018 calendar year NOL via Form 1045, Application for Tentative Refund, or Form 1139, Corporation Application for Tentative Refund, must file these forms by June 30.
  • July 27, 2020 – deadline for taxpayers with an NOL arising in a fiscal year that straddles Dec. 31, 2017, who do not waive the two-year carryback period to file Forms 1045 or 1139.
  • Sept. 29, 2020 – deadline for partnerships subject to CPAR to file amended returns and Schedules K-1 in lieu of AARs for tax years beginning in 2018 or 2019, pursuant to the relief described above. 

In addition to the specific deadlines above, to claim bonus depreciation on QIP placed in service in 2018 via an amended 2018 return, the taxpayer must file the amended return prior to filing their 2019 return. Otherwise, an accounting method change will be required.  

Lastly, the IRS recently announced that electronic filing will be available for 2019 individual amended tax returns starting this summer (mailed paper submissions were previously the only option for amended filings). Given the significant limitations the IRS faces in processing paper-filed returns in the wake of the pandemic, it is highly likely that an amended return filed electronically once the option is available will get processed sooner than one filed by paper today. As such, we recommend waiting until the e-filing option is available.

View more insights from our guide to tax planning during and after COVID-19

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The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

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