IRS Provides Updated FAQS for Corporate Net Operating Loss Carrybacks

Over the past week the IRS has posted several updates to its Frequently Asked Questions spanning multiple topic areas.  One of these updates included additional information and clarification regarding Corporate Net Operating Loss carrybacks and interplay with Alternative Minimum Taxes.  The CARES Act provides C corporations with a 5 year carryback period for NOLs in the 2018, 2019 and 2020 tax years.  This means a corporation that incurs a net operating loss in 2019 can carry the NOL back to 2014 and forward to 2015 and forward to request a refund of tax.

One question that arose was how a corporation should compute Alternative Minimum Taxes in the carryback years.  Recall that corporate AMT was repealed as of December 31, 2017, as such a corporation would not incur a net operating loss for AMT purposes for tax years beginning after December 31, 2017.  This led to uncertainty for taxpayers that could now be able to carry net operating losses back to years in which it was subject to AMT.

Fortunately for affected corporations, the IRS has provided its insight on the issue in FAQ #1 in the link below.  The FAQ provides that for post-2017 tax years (years beginning after 12/31/17) taxpayers should treat its Alternative Minimum Tax NOL as $0.

Click Here for IRS Questions and Answers about NOL Carrybacks of C Corporations to Taxable Years in which the Alternative Minimum Tax Applies

Treating the ATNOL as zero in the pre-2018 carryback may result in certain corporations paying Alternative Minimum Tax as well as generating a corresponding AMT credit available for use in succeeding tax years.  Although being subject to AMT in some or all carryback years would appear to reduce or limit the potential benefit of carrying losses back, corporations should be able to claim additional refundable AMT credits in tax years 2018 and 2019, depending on whether the corporation makes an election to claim 100% of the AMT credit in the 2018 tax year (Note: this was an additional change in the CARES Act.  As previously provided by TCJA, corporations were able to claim refundable credits based on 50% of tax in 2018 and 2019 with the potential of claiming 100% of any remaining AMT credits 2020).

Additional information regarding filing a tentative claim for refund for AMT credits is also provided in the FAQs.

Questions? Contact us at covid19relief@hertzbach.com.