Pub. 8 2020 Issue 3

12 The Community Banker www.mibonline.org Associate Member ACCELERATED TAX BENEFITS IN THE CARES ACT By Steven Johnson, CPA, Shareholder A Z, Helena, MT I n response to the novel coronavirus, 2020 has been a momentous year for federal tax legislation that created programs and provisions to help small businesses weather the global pandemic storm. The response has been extensively reported on. Most lenders are familiar with the most popular programs, such as the Paycheck Protection Program (PPP) and Economic Injury Disas- ter Loan (EIDL) programs. While these programs are the most widely understood, the Corona- virus Aid, Relief and Economic Security (CARES) Act contains several items to accelerate tax benefits for individuals and corporations. This article discusses three less known tax-related items from the CARES Act that lenders can look for when reviewing the tax returns of current or potential borrowers. Lenders should refer taxpayers to a qualified tax professional for further assistance. Net Operating Losses The Tax Cuts and Jobs (TCJA) Act, passed in December 2017, contained legislation that limited taxpayers’ ability to carry back and deduct net operating loss (NOL). Specifically, NOL carrybacks were eliminated for losses incurred in businesses other than farming and farm businesses were given a two-year carryback instead of their his- torical five-year carryback. In addition, losses could be carried forward indefinitely, but deductions for NOLs carried forward were limited to 80% of taxable income before the NOL deduction. These provisions delayed and limited tax benefits from losses. The CARES Act amends the laws that govern the taxpayer’s ability to carry back net operating losses. Under the CARES Act, taxpayers can carry back NOLs generated in 2018, 2019 and 2020 for up to five years, and it applies to all businesses. The Act also allows for simplified filing with Form 1045, Application for Tentative Refund, or Form 1139, Cor- poration Application for Tentative Refund. These forms can be filed via fax, and taxpayers could see a refund in as little as two weeks. Lenders should review borrowers’ individual or corporate income tax returns for net losses in 2018, 2019 or 2020 to see if they can seek these added benefits. It is expected these provisions will be widely utilized during the 2021 filing season for tax years ending December 2020. Corporate Alternative Minimum Tax (AMT) Credits TCJA repealed AMT tax for corporations. Corporations with unused AMT tax credits could claim them over the four years between 2018 and 2021. The CARES Act now allows corporations to claim the balance of un- used AMT tax credits in 2018 and 2019. Lenders should look for Form 8827, Credit for Prior Year Minimum Tax — Corporations, for unused AMT credits. Taxpayers can amend or file Form 1139, Corporation Ap- plication for Tentative Refund, to claim unused AMT tax credits. Bonus DepreciationAvailable for Qualified Improvement Property The TCJA inadvertently excluded bonus depreciation for Qualified Improvement Property (QIP) by designating it as 39-year property instead of 15-year property. Since the TJCA, tax preparers have been waiting for a technical correction to allow QIP to be deducted through bonus depreciation. This correction was included in the CARES Act. In March 2020, the IRS updated Publication 946, How to Depreciate Property, in response to the CARES Act. Generally, QIP includes any improvements to an interior portion of a nonresidential real property building if the improvements were placed in service after the date the