Tax News & Views Monetizing NOLs Roundup

June 1, 2020

Economic Analysis: Monetizing NOLs During a Recession – Martin A. Sullivan, Tax Notes ($)

Economists approve: Refunds for losses are just a logical extension of taxes on profits. A tax system without symmetric treatment of losses runs into all types of problems. Without refunds for losses, risky investments are disfavored because when government shares in gains but not losses, the expected after-tax rate of return is lower for riskier investment with the same before-tax rate of return on a safe investment. Without refunds for losses, risky investment in research is favored by conglomerates over specialized companies. Without refunds, all those tax incentives for good causes are diminished and distorted.


The Tax Cuts and Jobs Act eliminated carrybacks of operating losses generated after 2017 and allowed carryforwards of those losses to reduce taxable income by no more than 80 percent. Thus, the TCJA removed an important automatic stabilizer that had played an important role in the 2002 and 2007-2009 recessions. The Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136), signed into law March 27, quickly repaired that shortcoming and more by allowing not only losses incurred during the 2020 crisis to be carried back five years (through 2015) but also losses incurred in 2019 and 2018 (through 2014 and 2013). Also, it repealed the 80 percent of income limitation.


Tax Prosecutions and Convictions Plummet in April - Frederic Lee, Tax Notes ($). “New tax-related prosecutions in April were down 67 percent from the prior month, and convictions fell more than 70 percent, according to recent data tracked by Syracuse University.”

IRS Will Allow Taxpayers To File Amended Returns Electronically – Kelly Phillips Erb, Forbes. “Before this year, you could only amend your tax return by paper. At the best of times, that could mean a six-to-eight week wait for processing. And these are not the best of times. With a backlog of mail due to the pandemic, processing times were expected to be extremely lengthy.”

IRS workers returning June 1 to offices and 10 million pieces of unopened snail mailKay Bell, Don’t Mess With Taxes.

In addition to delivering snail-mailed COVID-19 economic relief paper checks and debit cards, postal carriers also have been dropping off bags of material to IRS offices. This has been going on even as most tax staff weren't there to handle it. And that's led to around 10 million pieces of tax-related mail waiting to be processed by the IRS. That number includes nearly 5 million unopened paper tax returns that have arrived at IRS offices nationwide since it closed most of them in mid-May, according to a report obtained by POLITICO.


Got Cryptocurrency? Get Ready For An IRS Audit - Guinevere Moore, Forbes. “the IRS is hiring outside contractors who are experts in cryptocurrency to help them identify cryptocurrency investors whose tax returns either omit or contain incorrect data regarding cryptocurrency transactions. There’s only one reason why the IRS would hire experts in cryptocurrency as outside contractors: because they plan to significantly increase the volume and scrutiny of cryptocurrency audits.”

Taxpayers’ petition to the Tax Court was untimely – Charles J. Reichert, CPA, Journal of Accountancy. “The Tax Court granted the IRS's motion to dismiss a married couple's petition to the court to redetermine their tax deficiency. The court held that the petition's U.S. Postal Service (USPS) postmark indicated it was filed a day late, despite the taxpayers' testimony they placed it in the mail the day before, when they also stamped it with a private postage meter.”

Look before you leap into a 529 plan – Keith T. Jones, CPA, Ph.D and Rebecca Hamm, CPA, Journal of Accountancy. “The basic provisions and benefits of 529 plans are well documented; less understood, however, is whether they are always the best option.”

Should Wealth Taxes Pay For Coronavirus Relief And Recovery? Janet Holtzblatt, TaxVox.

Emmanuel Saez and Gabriel Zucman—the most prominent academic advocates of wealth taxes—already are calling for the creation of a wealth tax to fund Europe’s COVID-19 response. 

Much more surprising is the reversal by the editorial board of the Financial Times, the voice of the British economic establishment. Its position in November (paywall):  “Taxing wealth should be a last resort.”  In April, the FT wrote (paywall), “…the virus, the economic lockdowns needed to combat it, also shine a glaring light on existing inequalities—and even create new ones.” To pay for pandemic programs, they conclude, “wealth taxes will have to be in the mix.”

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