After the rapid flurry of IRS guidance issued on April 9,2020, we provide below a brief summary of elements that affect domestic and foreign taxpayers’ requirements to file certain income tax returns and related US foreign reporting, as well as make certain payments of income tax.
Filing and Payment Deadlines
The IRS expanded in Notice 2020-23 the previously announced extension to file and pay to all taxpayers that have a filing or payment deadline falling on or after April 1, 2020, and before July 15, 2020. The IRS clarified that this relief includes returns due June 15, 2020, pertaining to taxpayers residing abroad as well as nonresident aliens without Form W-2 wages subject to withholding tax, and foreign corporations with no U.S. office. Additionally, this relief includes returns and income tax payments of foreign corporations due June 15, 2020, including returns filed for the purpose of claiming tax treaty benefits or making a protective filing.
Notice 2020-23 also clarifies the initial ambiguity regarding information returns that are filed contemporaneously with income tax returns by providing that relief also applies to all schedules, returns, and other forms that are filed as attachments to an income tax return, including Forms 3520, 5471, 5472, 8621, 8865, and 8938.
Finally, as a result of the postponement of the due date for filing tax returns and making payments, the IRS has clarified that the period beginning on April 1, 2020, and ending on July 15, 2020, will be disregarded in the calculation of any interest, penalty, or addition to tax for failure to file or failure to pay.
Section 965 Transition Tax Installment Obligation Payments
Notice 2020-23 provides additional relief with respect to section 965(h) Transition Tax installment obligation payments due on or after April 1, 2020, and before July 15, 2020, whereby the due date for making such Specified Payments are automatically postponed to July 15, 2020.
Net Operating Losses (“NOLs”)
The IRS has provided additional guidance in Revenue Procedure 2020-24 to taxpayers with net operating losses that are carried back under the CARES Act, including guidance to exclude from the carryback period for an NOL arising in a taxable year beginning after December 31, 2017, and before January 1, 2021, any taxable year in which the taxpayer has a Section 965(a) inclusion. To make that election, the taxpayer must attach a statement to the earliest filed of: (1) the tax return for the taxable year in which the NOL arises; (2) Form 1045 or Form 1139; or (3) the amended tax return applying the NOL to the earliest taxable year in the carryback period that is not a section 965 year.
As indicated previously, a Section 965(n) election is deemed made for taxable years in which an NOL is carried back, which disregards the section 965(a) inclusion in terms of determining the NOL.
The IRS has also extended the deadline for filing an application for tentative carryback adjustment (Notice 2020-26). Generally, corporations make the application on Form 1139 and taxpayers other than corporations must make the application on Form 1045 within 12 months of the close of the taxable year in which the NOL arose.
Under this relief, the IRS grants a six-month extension of time to file Form 1045 or Form 1139 to taxpayers that have an NOL that arose in a taxable year that began during calendar year 2018 and that ended on or before June 30, 2019. Thus, in the case of an NOL that arose in a taxable year ending on December 31, 2018, a taxpayer normally would have until December 31, 2019, to file the Form 1045 or Form 1139, as applicable, however, due to this relief such taxpayer will now have until June 30, 2020, to file the Form 1045 or Form 1139, as applicable.