IRS Guidance on Claiming Tax Credits and Quick Refunds Related to COVID-19 Relief

April 20, 2020 by

Individual taxpayers are starting to see stimulus checks arrive and small businesses have now exhausted the money available under the CARES Act Paycheck Protection Program (PPP) forgivable loans. The IRS, SBA, and affiliated lenders have all moved quickly to get money in the hands of needy taxpayers. If you are among the small businesses that weren’t able to get a PPP forgivable loan before funds are exhausted – Congress is still debating increases to that program and the commentators appear optimistic. Meanwhile, there are other forms of relief provided in the recent legislation that may help taxpayers weather the current pandemic. The IRS recently released new guidance related to tax credits for required paid leave and claiming of net operating losses (NOLs) and applying for any applicable refunds. Here’s what taxpayers should know.

Paid Leave Tax Credits

These tax credits were implemented as part of the Families First Coronavirus Response Act (FFCRA) to help businesses cover costs of providing employees with required paid sick leave and family and medical leave associated with COVID-19. Details of these credits can be found in a previous Brown Fox blog post located here.

  • The new IRS guidance is provided through expanded FAQs on the IRS website. Taxpayers should know that such guidance does not have the force of law and the IRS can, and sometimes does, change or remove FAQs. However, for taxpayers with questions this provides basic information on the credits and information on how to calculate the sick leave credit, family leave credit, allocable health care plan expenses, and how to claim the credit on a taxpayers Forms 941.
  • The IRS has also addressed special issues for employers and employees such as how to substantiate eligibility for the credit (FAQs 44-46), interaction of FFCRA tax credits with other tax credits (FAQ 52), and the use of third-party payers (FAQ 53).
  • Specific guidance is also provided for self-employed individuals (FAQs 60-66).

Net Operating Losses (NOLs)

The CARES Act allows taxpayers with a net operating loss arising in a taxable year beginning in 2018, 2019, or 2020 to carry that loss back to each of the five preceding years. There is a two-year carryback for NOLs arising during a taxable year that began in 2017 and ended in 2018. Because these carrybacks were not previously allowed, based on previous changes implemented by the Tax Cuts and Jobs Act (TCJA), taxpayers would be wise to reevaluate where changes could result in immediate refunds. If so, recent IRS guidance provides instructions on determining the NOLs and applying for any applicable refunds.

  • Only claims under Sections 2303 and 2305 of the CARES Act are available for claiming on quick refund IRS Forms 1139 and 1045. Individuals, trusts, and estates file IRS Form 1045 and corporations filed IRS Form 1139.
    • Starting April 17, 2020, IRS Form 1139 should be faxed to 844-249-6236 and IRS Form 1045 should be faxed to 844-249-6237. If you previously submitted a hard copy of the either form you can, and should, fax the form since the IRS is no longer processing hard copies. This is a temporary procedure designed to process refunds as quickly as possible.
    • The IRS has also granted a six-month extension of time to file Forms 1139 and 1045 for NOLs beginning during calendar year 2018 and ending before June 30, 2019.
    • If there is a problem with the submitted forms the IRS will contact you by phone, so double-check the number on the forms so you ensure it is accurate.
  • Partnerships do not file IRS Forms 1139 and 1045 but, instead, follow the amended partnership return procedures release by the IRS in Revenue Procedure 2020-23. A summary of those provisions were outlined in a previous Brown Fox blog post here.

The recent guidance is provided by the IRS with the caveat that they will continue to issue, modify, and update FAQs and release further guidance. Therefore, before you take any action you should consult with a tax advisor on the most recent rules and guidance and any details related to your specific situation.

Joshua D. Smeltzer
joshua@brownfoxlaw.com

Joshua D. Smeltzer is a tax attorney with over sixteen years of experience representing individuals, corporations, receiverships and formerly the U.S. Government in a variety of tax matters. Mr. Smeltzer uses the first-hand knowledge gained inside the government to both advise and represent clients before and during IRS examinations and when defending tax positions at IRS Appeals or in federal court. He has experience handling individual, corporate and partnership tax disputes involving various tax credits and deductions, reporting and disclosure of foreign bank accounts, individual and corporate tax audits and collection, partnership audits and collection, estate and gift tax audits and collection, cryptocurrency tax issues, summons enforcement and many other tax topics.

 

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