Refund opportunities in the CARES Act
Mark Sellner, CPA, JD, LLM (taxation) | August 2020 Footnote
Editor's note: Updated July 28, 2020
It’s not always bad news when amended returns are filed. As part of coronavirus tax relief, the
Coronavirus Aid, Relief, and Economic Security (CARES) Act retroactively suspended certain business tax restrictions in the 2017
Tax Cuts and Jobs Act, and made a technical correction that might provide refund opportunities.
The Minnesota Legislature took no action during its regular 2020 legislative session in response to these federal changes. Even so, if a federal return is amended, a copy must be filed with the Minnesota Department of Revenue within 180 days. Here are some considerations.
Modifications for net-operating losses (CARES Act Section 2303)
The 80% of taxable income limitation on NOL carryforwards is suspended for 2018, 2019 and 2020. A five-year carryback now is allowed for losses arising in 2018, 2019 and 2020.
Notice 2020-26
Extension of Time to File Application for Tentative Carryback Adjustment and Revenue Procedure 2020-24 provide NOL carryback procedures.
Modification of limitation on noncorporate losses (CARES Act Section 2304)
Under the 2017
Tax Cuts and Jobs Act, for taxable years beginning after Dec. 31, 2017, and before Jan. 1, 2026, an excess business loss of a taxpayer other than a corporation was not allowed for the taxable year. It carried forward as an NOL.
The $500,000 limitation on noncorporate losses does not apply for 2018, 2019 and 2020.
Modifications of limitation on business interest (CARES Act Section 2306)
Under the 2017
Tax Cuts and Jobs Act, the deduction for business interest expense generally was limited to the sum of business interest income, 30% of adjusted taxable income and floor plan financing interest.
The 30% of adjusted taxable income limitation on business interest deductions is increased to 50% for 2019 and 2020. The provision also permits a taxpayer to elect to substitute its 2019 adjusted taxable income for 2020 in computing the limitation.
Revenue Procedure 2020-22 provides guidance with respect to available elections related to the business interest limitation.
Technical amendments regarding QIP (CARES Act Section 2307)
A technical correction to the 2017
Tax Cuts and Jobs Act retroactively fixes the so-called retail glitch that inadvertently classified qualified improvement property (QIP) as 39-year property, thus excluding it from 100% bonus depreciation. The provision clarifies that QIP is 15-year property and, therefore, eligible for bonus depreciation.
Revenue Procedure 2020-25 provides guidance on the additional first-year depreciation deduction.
Mark Sellner consults with other CPAs and their clients on business and executive tax matters, including S Corporation and partnership taxation and the tax consequences of buying and selling a business. He is a member of the Minnesota Society of CPAs, where he has received the R. Glen Berryman Excellence in Teaching Award and the Distinguished Service Award, and the Florida Institute of CPAs. You may reach him at Sellner-Tax-Consulting-LLC@outlook.com or 612-508-4107.
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