Tax News & Views Lagging Losses and Virus Anniversary Roundup

December 1, 2020

GAO Report Reveals Lagging NOL Carryback Use - Jad Chamseddine, Tax Notes:

Congress passed the CARES Act (P.L. 116-136), which allows businesses to carry back NOLs beginning in tax years 2018, 2019, and 2020 for up to five years. The provision came under fire from Democrats, who in subsequent relief measures have attempted to curtail the years in which losses can be carried back.

The IRS is unable to determine how effective the provision has been because of a delay in processing returns, according to the GAO. But the report also shows that only about 14,000 businesses applied for the carryback relief, with about two-thirds requesting refunds of less than $100,000.

Why so low? Part of it is because for most businesses 2019 was a good year, and they can't carry back 2020 net operating losses until they complete their 2020 filings. 

Because the entire country is an official disaster area as a result of COVID-19, taxpayers are permitted to deduct 2020 disaster losses on amended 2019 returns and carry back any 2019 NOLs that result. Because the coronavirus disaster is unprecedented, and its damages aren't as clear cut as those resulting from earthquakes, fires or weather disasters, it's less clear what losses are "disaster losses" for this purpose. The IRS has failed to provide additional guidance, making taxpayers reluctant to amend 2019 returns.

December 31 is a key deadline for 2019 net operating loss carrybacks. That is the last day taxpayers can file for "quickie refunds" for carried-back losses generated in 2019 on forms 1045 (individuals) and 1139 (corporations). That is also the day the IRS unplugs the special fax program for claiming quickie refunds. After that date, 2019 NOL carrybacks will only be available by filing amended returns on paper for the carryback years - a slower process.


How to Deal with Hackers: Detection and Action - Jason Olson and Anders Erickson, Eide Bailly: 2020/11 

There are many warning signs to look for if you suspect there has been a cybersecurity breach. The most obvious signs usually occur in company browsers. Examples include ransomware messages, receiving a fake antivirus message, redirected internet searches, frequent, random popups, and rogue mouse pointers.

Stronger signals indicating a company has been hacked by cybercriminals are usually the most destructive. You may observe strange network traffic patterns, large numbers of requests for the same file, geographical irregularities, database extractions, and more.

Also: "Educate your employees, invest in better software, and establish a response team."

Holiday internet security can help prevent tax ID theft - Kay Bell, Don't Mess With Taxes. "Much of the data that criminals are trying to snag this holiday shopping season also can be used during the rapidly approaching 2021 tax season to steal you tax identity and use it to file a fake return claiming a fraudulent tax refund."


IRS Phone Scammer Sentenced To 20 Years In Prison - Kelly Phillips Erb, Forbes ($). "Victims of the scam were instructed how to provide payment, including by purchasing debit or gift cards or wiring money. Once the payment had been made, runners based in the U.S. would liquidate and launder the extorted funds as quickly as possible. Runners typically earned a specific fee or a percentage of the funds in the scam."


Processing of ‘Parking Tax’ Refund Claims for EOs Could Be Delayed - Fred Stokeld, Tax Notes ($):

An EO can seek a refund by filing an amended Form 990-T, “Exempt Organization Business Income Tax Return.”

But because Forms 990-T are paper returns and the IRS has scaled back mail processing to comply with social distancing guidelines, there have been some delays in processing the section 512(a)(7) claims, according to Margaret Von Lienen, exempt organizations director, IRS Tax-Exempt and Government Entities Division


No Relief Granted to Taxpayer Who Asked to File Election Under §475(f) Late - Ed Zollars, Current Federal Tax Developments. "The mark to market election allows a trader to get around the $3,000 annual limit on net capital losses, treating the transactions as leading to ordinary income and loss.  However, the taxpayer must agree to “mark to market” any securities held at year end, reporting a gain/loss based on their value at the end of the year, resetting their basis to that level at the beginning of the following year."

Is Real Estate Held in Trust Eligible For I.R.C. §1031 Exchange Treatment? - Roger McEowen, Agricultural Law and Taxation Blog. "For land contained in a non-grantor trust, the language of the trust is critical."

Wrigley Field Granted Historic Landmark Status, Associated Tax Credits - Aaron Davis, Tax Notes ($). "The federal NHL program provides an income tax credit equal to 20 percent of the qualified rehabilitation expenses of income-producing buildings. A Cubs spokesman told the Chicago Tribune in 2019 that the Ricketts family can expect to receive between $100 million and $125 million in tax credits."

Lesson From The Tax Court: The Right Way To Do Conservation Easements - Bryan Camp, TaxProf Blog. "But not all conservation easements are tax shelters.  Kumar Rajagopalan and Susamma Kumar v. Commissioner, T.C. Memo. 2020-159 (Nov. 19, 2020) (Judge Holmes) shows how taxpayers can properly deduct the donation of a conservation easement if they have good planning, good representation, and good luck."


South Carolina Further Extends Tax Relief for Businesses With Remote Workers - South Carolina Department of Revenue via Tax Notes:

On May 15, 2020, the Department issued SC Information Letter #20-11 to announce temporary relief regarding a business's establishment of nexus (income and sales) solely because an employee is temporarily working in a different work location due to COVID-19 and provided guidance with respect to employer withholding requirements for these employees. The relief was effective from March 13, 2020 through September 30, 2020. SC Information Letter #20-24, issued August 26, 2020, extended the relief until December 31, 2020.

The Department is announcing that the relief set forth in SC Information Letter #20-11 is further extended through June 30, 2021.

Related: Telecommuting Workers in Refuge States Complicate State Taxes.

Colorado Governor Orders Tax Relief for Restaurants, Small Businesses - Caronina Vargas, Tax Notes. "The November 25 executive order will provide a 30-day extension for remitting state sales taxes collected by restaurants, bars, and food trucks for November, up to a $2,000 limit."


Remember Low Income Taxpayer Clinics and Other Tax Charities on Giving Tuesday - Nina Olson, Procedurally Taxing. "If there is a clinic in your vicinity, please consider volunteering for their pro bono panel as well as giving – LITCs need help from all manner of taxpayer professionals – attorneys, CPAs, enrolled agents.  And your volunteer time counts as matching funds – in grant year 2018, over 1,887 volunteers gave 56,971 hours.  If there isn’t a clinic near you, consider giving to a rural or other clinic that has not yet received the full $100,000 annual federal grant.  You can find the list of 2020 grantees and the grant award here."

Navigating the 2020 Tax Extenders in the Pandemic Economy - Erica York, Tax Policy Blog. "At the end of 2020, 33 temporary tax provisions are scheduled to expire at the federal level. These provisions generally fall under four categories: cost recovery, energy, individual, and other business provisions."

The Supreme Court Is Hearing A Case That Could Block the IRS From Halting Abusive Tax Shelters - Mark J. Mazur, TaxVox. "While the lawsuit has received little attention, it could gut the ability of the IRS to limit abusive tax shelters."

Does a Work From Home Tax Make Sense? - Annette Nellen, 21st Century Taxation. "[Deutsche Bank] suggests a WFH tax of 5% of the employee's salary with the revenue used to help displaced workers."

You Say You Want a Revolution: Redefining the Taxing Power - Marie Sapirie, Tax Notes. "The award for the most considered vision of federal taxation goes to the libertarian group of Ilya Shapiro of the Cato InstituteTimothy Sandefur of the Goldwater Institute, and Christina Mulligan of Brooklyn Law School... What they propose instead of a federal income tax is a uniform VAT on goods and services. Income, gift, estate, and direct taxes would be prohibited, as would any tax on aggregate consumption or expenditures. Tax increases would require the approval of three-fifths of the House and Senate and would have to be presented separately to the president." 


Happy Birthday. According to at this report, the first known patient came down with COVID-19 symptoms on this date in 2019.

Celebrate Giving, Pie, Apples, and Rosa Parks. Today is, among other things:

Giving Tuesday

National Rosa Parks Day

National Eat a Red Apple Day

National Pie Day.

All worthy occasions.


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