In a series of frequently asked questions, the IRS addressed the interaction of recently enacted NOL carryback provisions and section 965. We outline the IRS guidance and implications in this article.

In Depth

In a series of frequently asked questions (FAQs) addressing the interaction of recently enacted net operating loss (NOL) carryback provisions and section 965, the IRS stated that taxpayers may not receive a refund of any section 965 tax payment unless and until the payment exceeds the “entire income tax liability for section 965.” The IRS further stated that such amount “includes all amounts to be paid in installments under section 965(h) in subsequent years.” This position – that taxpayers are not entitled to a refund of an overpayment of the section 965 tax liability unless and until the overpayment amount exceeds the full eight years of installment payments – is consistent with the IRS’s previously published position in PMTA 2018-016 (and as discussed in our prior analyses, here and here).

The FAQs also clarify that taxpayers have the ability either to elect to waive the entire carryback period (with respect to both section 965 years and non-section 965 years), or waive the carryback only with respect to the section 965 years. Taxpayers may elect to exclude only the section 965 years by attaching an election statement to a tax return (or Forms 1139 or 1045, if applicable), and such election is generally due by the due date for filing a return for the first taxable year ending after March 27, 2020.

Practice Point

Taxpayers should model the anticipated tax refunds from carrying back NOLs, but should keep in mind that any section 965 overpayment will not be refunded if there are any outstanding future installment payments.

Taxpayers may also be required to amend prior year tax returns to update tax attributes that may have changed as a result of the carryback of NOLs.