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IRS Issues Temporary Procedures to Fax Form 1139 and 1045 Tentative Refund Claims for Net Operating Losses By Robert Horwitz and Tenzing Tunden

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act)[i] enacted many relief provisions for taxpayers.. In particular, the CARES act will allow taxpayers who have net operating losses (NOLs) for tax year 2018, 2019, and 2020 to carry the NOL back to each of the five preceding years unless the taxpayer elects to waive or reduce the carry back.[ii]   The CARES Act also  modifies the credit for prior-year minimum tax liability for corporations, including to accelerate the recovery of remaining minimum tax credits of a corporation for it’s 2019 taxable year from it’s 2021 taxable year and to permit  a corporation to elect instead to recover 100% of any of its remaining minimum tax credits in its 2018 taxable year.[iii] These changes are significant because the Tax Cuts and Jobs Act of 2017 disallowed carrybacks of NOL deductions and repealed the corporate alternative minimum tax.  The IRS has also now taken administrative action to assist taxpayers in expediting these refunds.

Temporary Procedures to Fax Tentative  Refund Claims for NOLs

On April 13, 2020, the IRS posted FAQs on faxing claims for credit or refund resulting from NOL carrybacks and corporate AMT credits under secs. 2303 and 2305 of the CARES Act.  Beginning April 17, 2020 the IRS will accept eligible tentative  refund claims Form 1139 and Form 1045 that are faxed.[iv] The IRS has allowed these forms to be faxed due to the health emergency impacting the timeliness of these forms being mailed. Taxpayers can fax Form 1139 to 844-249-6236 and Form 1045 to 844-249-6237.  Previously, all claims for refund or credit had to be mailed to the IRS. This procedure only applies to CARES Act NOL carrybacks and corporate AMT credits.  All other claims for credit or refund must still be mailed to the IRS.

A maximum of 100 pages can initially be faxed to either of the fax numbers listed above.  If additional documentation is required to be attached or deemed to be necessary, taxpayers will be notified during the processing of Form 1139 or Form 1045.

The procedures to process refund claims will otherwise remain the same.  If the taxpayer has previously mailed in Form 1139 or Form 1045 the taxpayer is free to fax the forms starting April 17.  All claims will be processed in the order of receipt. If a document faxed is deemed an ineligible refund claim it will be processed after normal operations resume.  This will not become a permanent method of processing the applications after the COVID-19 pandemic is no longer in existence.

Refunds in Tax Years Related to IRC §965(a) Inclusions

The Tax Cuts and Job Acts imposed a one-time transition tax of 15.5% for cash positions and 8% for other amounts on U.S. shareholders’ share of a specified 10% owned foreign corporation’s deferred earnings and profits. There is a §965(n) election taxpayers can make to not have the NOL deduction apply to their transition tax liability and not affect foreign tax credits that the taxpayer can elect. If a taxpayer has §965(a) deemed repatriation income, Forms 1139 and 1045 can be used despite instructions on the forms saying they are not eligible to be used for “§965(a) years.”

The IRS will plan to issue additional instructions for taxpayers that have a §965(a) inclusion.

Form 4446 Corporation  Application for Quick Refund of Overpayment of Estimated Tax

The IRS will not extend these temporary procedures to Form 4466.  Form 4466 must be filed in accordance with existing Form instructions.  If this Form is faxed it will not be accepted for processing.

Robert S. Horwitz is a principal at Hochman Salkin Toscher Perez P.C., former Chair of the Taxation Section, California Lawyers’ Association, a Fellow of the American College of Tax Counsel, a former Assistant United States Attorney and a former Trial Attorney, United States Department of Justice Tax Division.  He represents clients throughout the United States and elsewhere involving federal and state administrative civil tax disputes and tax litigation as well as defending criminal tax investigations and prosecutions. Mr. Horwitz can be reached at horwitz@taxlitigator.com or 310.281.3200.   Additional information is available at https://www.taxlitigator.com.

 Tenzing Tunden is a Tax Associate at Hochman Salkin Toscher Perez P.C. Mr. Tunden is a 2019 graduated from the Graduate Tax Program at NYU School of Law and the J.D. Program at UC Davis School of Law. During law school, Mr. Tunden served as an intern at the Franchise Tax Board Legal Division and at the Tax Division of the U.S. Attorney’s Office (N.D. Cal).

[i] P.L. 116-136.

[ii] §2303 of the CARES Act.

[iii] §2305 of the CARES Act.

[iv] Only refund claims filed under sections 2303 and 2305 of the CARES Act.

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