expense is greater than the limitation onthe interest expense.
Last week the IRS issued RevenueProcedure 2020-22, which provides taxpayers leeway to revoke the RPTOB election by filing an amended 2018 tax return.In filing the amended return, the taxpayercould take advantage of 100% bonusdepreciation on the QIP and revoke theelection at the same time; the taxpayerthereby will be treated as never havingmade the election.
This still doesn’t answer questions thatcame out when the TCJA was implemented. For example, would taxpayers beable to revoke the election for 2018 (to getthe benefit of additional bonus depreciation) and then make the election in 2019,allowing all previous disallowed interestexpense to be deductible? Or would thedisallowed amount still need to go throughthe interest limitation calculation?
At the very least, taxpayers and theiradvisers will certainly have to put pen topaper to decide on the best course of actionregarding the RPTOB election and QIP.And for partnerships, the change made bythe CARES Act to the interest limitationcomplicates matters even more: For taxyear 2019, the interest limitation percentage for partnerships is not increased.
Carrying Back NOLs
The CARES Act also provides corpora-
tions with the opportunity to carry back
net operating losses from 2018, 2019 and
2020 for five years. One of the first ideas
that comes to mind is that perhaps taxpay-
ers could “supercharge” their 2018 NOLs
(or create a 2018 NOL) by amending 2018
tax returns to take advantage of bonus
depreciation on QIP. Alternatively, it may
make sense for certain taxpayers to take
advantage of bonus depreciation for the
2018 tax year by filing a change of account-
ing Form 3115, thereby taking the deduc-
tion in 2019. However, note that the cor-
porate tax rate in 2019 is 21% versus the
carryback years of 2013-2017 at 35%.
Thus, amending the 2018 tax return
and carrying back the NOL will provide
more bang for your buck.
In addition, the IRS issued Notice 2020-
26, which allows corporations to use Form
1139 to carry back 2018 NOLs. Form 1139
provides for a “quick refund” with limited
IRS review. The notice extends the due
date for such forms to June 30, 2020. After
that time, 2018 losses can still be carried
back, but must be done so on an amended
1120X. The benefits of using Form 1139
include the ease of filing such forms and
presumably getting money into the tax-
payer’s hands as quickly as possible.
However, there may be delays in refunds,
given the volume of anticipated claims.
Some intriguing questions also
NOL carrybacks. Prior to 2018, there was
still a corporate-level alternative minimum
tax (“AMT”), but it was repealed with the
enactment of the TCJA. It is difficult to
conclude that there is no AMT NOL to
carry back; surely that would not be the
law’s intent, as it would negate much of
the benefit of the NOL carryback.
However, even assuming there is an AMT
NOL to carry back, under the rules pro-
vided for carryback years 2013-2017, the
AMT NOLs would be limited to 90% of
alternative minimum taxable income,
resulting in an AMT due in those years.
This brings us to another change madeby the CARES Act, which was to makeminimum tax credits that are carried forward fully refundable in 2019. Additionally,
MAY 2020 GLOBEST. REAL ESTATE FORUM 9taxpayers could, in fact, refund the entirecredit on a 2018 amended return. Doesthis then require taxpayers to go throughall the mechanics of filing different formsjust to get the full refund?
The CARES Act made a second changeto NOLs, which was to eliminate the limitation on NOL use for 2019 and 2020; underthe TCJA, there was an 80% limitation onuse of NOLs. Of course, this should be considered along with all the other changesmentioned above as taxpayers and theiradvisors work through their analysis.
Amended Partnership Returns
Finally, the IRS issued Revenue Procedure2020-23, which allows an eligible partnership to file an amended Form 1065 andfurnish a Schedule K- 1 to each of its partners. The alternative to this would be foreach partner to file their own administrative adjustment request. There are a coupleof reasons to consider both options. First, ifpartners file their own AAR, such partnerswould take the adjustment in income during 2019 rather than 2018. Additionally, tothe extent that a partnership is able to takeadvantage of bonus depreciation on QIP,for example, then it must consider thateach of its partners will have to amend theirForm 1065. A likely scenario may involve acorporate partner requesting that all partners invest to amend their 2018 K- 1 so thatthe corporation can take advantage of thenew carryback rules.
Stephen Bertonaschi is a senior managing director in the Business Tax Advisory group withinthe Real Estate Solutions practice at FTIConsulting. Contact Stephen at Stephen.
Bertonaschi@fticonsulting.com. Scott Drago isa managing director in the group. Contact Scottat email@example.com.
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