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April 28, 2020

Stroock Special Bulletin

By: Jeffrey D. Uffner, Michelle M. Jewett, Kevin Matz, Brian J. Senie, Daniel Martinez, Lauren W. Shandler

Amid the raging COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020. The CARES Act provides significant relief for many individuals and businesses that have been adversely affected by the pandemic, including changes to the provisions of the Internal Revenue Code. Since the enactment of the CARES Act, the U.S. Treasury Department (“Treasury”) and the Internal Revenue Service (the “IRS”) have issued a number of Notices and Revenue Procedures, which clarify procedures pertaining to certain provisions in the CARES Act. In addition, Treasury and the IRS have issued helpful guidance providing taxpayers with further information on important tax-filing procedures and extensions for many of the due dates for tax returns, forms, elections and other filings. Some of the more significant recent developments are set forth below.

The provisions of the CARES Act will generally apply to the calculation of taxable income in state and local jurisdictions that conform to federal tax law. However, it is not clear that these jurisdictions will similarly adopt the interpretations and procedures set forth in these IRS announcements. This bulletin focuses only on the federal income tax impact of these announcements; their impact for state and local tax purposes will depend on the particular positions adopted by the relevant jurisdictions.

General Relief and Tax Deadline Postponement – (Notice 2020-23)


On April 9, 2020, Treasury and the IRS issued Notice 2020-23,[1] which significantly expanded the scope of emergency tax postponement relief from the IRS. The relief granted by this new notice covers taxpayers that have an IRS tax filing or payment deadline between April 1 and July 15, 2020. It applies to tax returns for fiscal year entities and tax-exempt organizations, Form 706 estate tax returns (including federal estate tax returns that are already on extension), and a multitude of information returns and other forms. In addition, the deadline for calendar year 2020 second quarter estimated tax payments has been moved from June 15 to July 15.

Also postponed to July 15, 2020, is the timeframe to perform certain acts that do not necessarily involve tax return filings. These include both the 180-day period to invest capital gains in a qualified opportunity fund and the 45-day identification and 180-day exchange period for the like-kind exchange rules. Because the relief is automatic, taxpayers do not need to file any extension forms or take any other action in order to qualify for this relief.

This expanded relief follows the IRS’s prior issuance of (i) Notice 2020-18,[2] which postponed the due date for both filing federal income tax returns and making federal income tax payments from April 15, 2020, to July 15, 2020, and (ii) Notice 2020-20,[3] which pushed back the April 15 gift tax return filing and payment deadline to July 15, 2020.

Details:  Tax Return Filing Postponement Generally

Notice 2020-23 grants postponement relief to July 15, 2020, for any federal income, estate or gift tax return that had a filing deadline between April 1, 2020, and July 15, 2020, including any attachments, forms or schedules required to be included with such tax returns. This relief also applies to second quarter estimated tax payments and filings.

The relief includes any installment payments under Section 965(h)[4] due on or after April 1, 2020, and before July 15, 2020. In addition, elections that are made or required to be made on a timely filed specified form (or attachment to a specified form) shall be timely made if filed on such specified form or attachment, as appropriate, on or before July 15, 2020.

Additionally, the period from April 1, 2020, to July 15, 2020, will be disregarded in any calculations of interest or penalties for the forms and payments specified by the Notice.

Details: Permitted Deferral of Performance of Time-Sensitive Actions

Notice 2020-23 further provides that any person performing certain actions that are due to be performed on or after April 1, 2020, and before July 15, 2020 (“Specified Time-Sensitive Action”) can defer such action until July 15, 2020. This relief includes the time for filing all petitions with the Tax Court, or for review of a decision rendered by the Tax Court, filing a claim for credit or refund of any tax, and bringing suit upon a claim for credit or refund of any tax.

For purposes of Notice 2020-23, the term Specified Time-Sensitive Action includes an investment at the election of a taxpayer to contribute capital gains to a qualified opportunity fund within the applicable 180-day period. This allows taxpayers that would otherwise be required to invest capital gain in a qualified opportunity fund from the period between April 1, 2020, and July 15, 2020, to wait until July 15, 2020, to make such contribution and still be eligible for benefits of Section 1400Z. For additional details with respect to this provision and to recent Treasury Regulations issued with respect to qualified opportunity funds, please see “IRS Issues Corrective Amendments to QOZ Regulations and Additional Time for Taxpayer Reinvestment Into QOFs,” (Stroock Special Bulletin, April 17, 2020).

Compliance with the 45-day identification period and 180-day exchange period of the like-kind exchange rules of Section 1031 also are Specified Time-Sensitive Actions covered by Notice 2020-23. As a result, the deadlines for taxpayers who seek to exchange real property on a tax-free (or tax-deferred) basis to identify replacement property and/or acquire replacement property are now extended until July 15, 2020, if they would otherwise have expired before July 15 and after April 1. It is important to note that there is no retroactive effect if the 45-day identification deadline and/or 180-day exchange period lapsed before April 1, 2020.

BBA Partnerships May Amend 2018 and 2019 Tax Returns – (Rev. Proc. 2020-23)

The CARES Act amended certain business tax provisions, including bonus depreciation for qualified improvement property effective after the enactment of the Tax Cuts and Jobs Act (“TCJA”) in 2017, increased business interest deduction caps, increased business loss allowance, and increased use of net operating loss (“NOL”) carrybacks and carryforwards. These amendments were designed to provide businesses with opportunities to receive refunds for prior year returns with the objective of making cash available to businesses struggling as a result of the country’s response to COVID-19. However, as a result of procedural rules enacted in the Bipartisan Budget Act of 2015 (the “BBA”), partnerships were unable to file amended tax returns to receive refunds for prior taxable years.

On April 8, 2020, the IRS released Revenue Procedure 2020-23,[5] which permits partnerships subject to the centralized partnership audit regime enacted in the BBA (“BBA partnerships”) to file amended partnership returns and issue amended Schedules K-1 for taxable years beginning in 2018 and 2019. Under the BBA, a partnership wanting to adjust items on its tax return must make an administrative adjustment request (“AAR”). The benefits of the adjustments of an AAR would result in the partners in partnerships that already filed their tax returns for 2018 and 2019 only being able to receive benefits from the CARES Act provisions when their 2020 tax returns were filed. The ability to amend previous returns allows BBA partnerships and their partners to take advantage of the retroactive CARES Act benefits on a more immediate basis.


The relief applies specifically to BBA partnerships that have filed a partnership return and have issued, on or before April 8, 2020, all required Schedules K-1 for taxable years beginning in 2018 or 2019. To access the relief, the partnership must file Form 1065 “U.S. Return of Partnership Income” with the “Amended Return” box checked and write “FILED PURSUANT TO REV PROC 2020-23” at the top of the amended return. Additionally, the partnership must issue an amended Schedule K-1 to each of its partners with the same statement attached. The amended return and Schedules K-1 must be filed and furnished before September 30, 2020.

Net Operating Loss Carrybacks Permitted Under CARES Act; Guidance on Waiver Elections and Special Rules – (Rev. Proc. 2020-24 & Notice 2020-26)


Following the enactment of the TCJA, NOLs for taxable years after such enactment could no longer be carried back to offset income from prior years, and could only be carried forward and used in future years to offset a maximum of 80% of taxable income. The CARES Act modified this to specially permit NOLs incurred in 2018-2020 to be carried back for up to five taxable years and to be carried forward to offset 100% of taxable income in future years. Under the CARES Act, the five-year carryback of NOLs is automatic, unless the taxpayer makes an irrevocable election to forgo the carryback for one or more such taxable years, effectively electing to carry forward such NOLs. In general, NOL carrybacks must be used for the earliest possible taxable years unless they are waived.

Many aspects of the CARES Act rules with respect to NOLs have been uncertain, absent IRS guidance. Revenue Procedure 2020-24[6] provides guidance on how these modified NOL provisions apply in situations in which: (1) taxpayers want to waive the NOL carryback and carry the losses forward instead, (2) foreign corporations want to waive the NOL carryback provisions for some, but not all, of the previous five years for purposes of Section 965, and (3) taxpayers with a taxable year beginning before January 1, 2018, and ending after December 31, 2017 (i.e., a taxable year spanning both sides of the end of the 2017 calendar year) want to make an NOL carryback election. In addition, Notice 2020-26[7] extends the deadline for filings for tentative carryback adjustments for the taxable year ending in 2018.


(1)  Revenue Procedure 2020-24 provides that taxpayers wanting to waive their NOL carrybacks under Code Section 172(b) for tax years 2018 or 2019 must do so by the deadline, with extensions, for the tax return for the first year ending after March 27, 2020. Such taxpayers should include a separate statement for the applicable year (2018 or 2019), state which year it pertains to, and state that the election that is applied with respect to Section 172(b)(3) is being made pursuant to Revenue Procedure 2020-24. Once made, such an election is irrevocable.

(2)  The TCJA imposed a one-time transition tax under Section 965 on a U.S. shareholder owning 10% or more of the equity of a foreign corporation with respect to such corporation’s deferred earnings and profits. Although the Section 965 transition tax is a one-time tax event, a taxpayer could make installment payments over an eight-year period. Revenue Procedure 2020-24 explains how a taxpayer may elect to exclude all or some Section 965 years from the carryback period for an NOL. For 2018 or 2019, taxpayers wanting to exclude an NOL carryback for Section 965 purposes must do so by the due date, including extensions, for the tax return for the first year ending after March 27, 2020. For an NOL arising in a taxable year beginning after December 31, 2019, and before January 1, 2021, such an election must be made by no later than the due date, including extensions, of the taxpayer’s tax return for the taxable year in which the NOL arises. The taxpayer should attach an election statement that includes (i) the federal income tax return for the taxable year in which the NOL arises, (ii) a claim for tentative carryback adjustment applying the NOL to a taxable year in the carryback period, or (iii) an amended tax return applying the NOL to the earliest non-Section 965 year in the carryback period.

(3)  Taxpayers with a taxable year bridging 2017 and 2018 may file carryback elections or tentative carryback claims no later than July 27, 2020. The election statement should include an amended return, the election being made along with explanatory details, and contain the label “Filed pursuant to Rev. Proc. 2020-24” at the top.

Notice 2020-26 provides an immediate extension for filings for tentative carryback adjustments for the taxable year ending in 2018. Because the usual deadline is December 31 of the subsequent year, the deadline for 2018 would have been December 31, 2019. However, the Notice provides an additional six-month extension until June 30, 2020.

Elections For Real Property Trades or Businesses, Interest Deductions, Depreciation – (Rev. Proc. 2020-22)


The TCJA amended Section 163(j) to provide a new limitation on interest deductions that generally limits the amount of interest that a taxpayer can deduct to 30% of a taxpayer’s adjusted taxable income for that year. However, taxpayers that operate a “real property trade or business” can make an election under Section 163(j)(7) to be exempt from this limitation, provided that the taxpayer agrees to use the Alternative Depreciation System (“ADS”) for depreciating its assets.

The CARES Act modified the rules of Section 163(j) to permit taxpayers to (i) increase their limitation from 30% to 50% for the 2019 and 2020 tax years, (ii) use their 2019 taxable income for purposes of calculating their 2020 Section 163(j) limitation, and (iii) for partnerships, treat 50% of any excess business interest expense allocated to partners in 2019 as being automatically paid or accrued in the partner’s 2020 taxable year without further Section 163(j) limitations at the partner level. The CARES Act also amended the rules on depreciation, allowing taxpayers to retroactively include leasehold improvements and other so-called “qualified improvement property” (“QIP”) as property eligible for bonus depreciation and a 15-year recovery period.[8] As a result of these changes, certain electing real property trades or businesses may prefer not to have made the election under Section 163(j)(7), so as to take advantage of the benefits under the CARES Act (such as increased depreciation for qualified improvement property).

Revenue Procedure 2020-22[9] allows taxpayers who previously made an otherwise-irrevocable real property trade or business election under Section 163(j)(7) for tax years 2018 and 2019 to withdraw such election.


To withdraw a Section 163(j)(7) election, taxpayers must file an election withdrawal statement with an amended federal income tax return, amended Form 1065 or AAR, as applicable, for the tax year in which the election was made. In general, this must be done no later than the due date (with extensions) for the 2020 tax return, or (generally) October 15, 2021. The election withdrawal must state specifically that the taxpayer is withdrawing its 163(j)(7) election pursuant to Revenue Procedure 2020-22.

Revenue Procedure 2020-22 also provides guidance on how to elect out of the CARES Act changes and how to elect to calculate taxable income using 2019 income for purposes of the new Section 163(j) limitation. In addition, Revenue Procedure 2020-22 provides an extension of time for taxpayers who may nevertheless wish to be treated as a real property or farming business to file an election under Section 163(j)(7) for the 2018, 2019 and 2020 taxable years.

Depreciation Elections – (Rev. Proc. 2020-25)


As noted above, the TCJA’s amendments to Section 168 intended to allow for 100% bonus depreciation and a 15-year recovery period for QIP. However, due to a technical error in the statutory text of the TCJA, QIP did not receive the intended treatment (instead having a 39-year depreciable life). The CARES Act amended this technical error, allowing taxpayers to retroactively include qualified improvement property as property eligible for a 100% bonus depreciation and a 15-year recovery period. Taxpayers are granted the ability to change Section 168 depreciation methodology for QIP placed in service by a taxpayer after December 31, 2017, in a tax year ending in 2018, 2019 or 2020.

The IRS released Revenue Procedure 2020-25[10] to provide more specific guidance on such modifications. Revenue Procedure 2020-25 permits taxpayers to make late elections to (i) deduct additional first year depreciation for certain plants,[11] (ii) not deduct additional first year depreciation for any class of qualified property placed in service by the taxpayer during that tax year,[12] (iii) deduct 50% (instead of 100%) of the additional first year depreciation for certain qualified property,[13] or (iv) use the ADS for depreciation purposes.[14] The Revenue Procedure also permits taxpayers to revoke an election for (i)-(iii) above, or withdraw an (ordinarily irrevocable) election for (iv).


The IRS and Department of the Treasury will treat a late election for (i)-(iii), or the revocation of such an election, as a change in method of accounting with a Section 481(a) adjustment for a limited period of time. For a withdrawal of an election under Section 168(g)(7) to use ADS methodology, the IRS and Treasury will generally treat such withdrawal as if the election was never made for all property included in the class of property and placed in service during the same taxable year; however, if the withdrawal of an election under Section 168(g)(7) was for an item of nonresidential real property or residential rental property, the taxpayer will be treated as if the election was not made only for that specific item.

To make a late election, taxpayers[15] can file an amended federal income tax return, an amended Form 1065 or Form 3115. Taxpayers may revoke the elections in (i)-(iii) by filing an amended federal income tax return or an amended Form 1065. To withdraw a Section 168(g)(7) election, taxpayers can file an amended federal income tax return, an amended Form 1065 or an AAR.

In general, these filings must be made by October 15, 2021, but cannot be later than the applicable period of limitations on assessment for the taxable year for which the amended return is being filed.

Relief for Mortgage Loans Held by REMICs – (Rev. Proc. 2020-26)


The CARES Act provides for, among other things, a temporary forbearance period for borrowers with certain federally backed mortgages who experienced financial hardships due to the COVID-19 pandemic. Holders of private mortgages may provide similar forbearance. Because many mortgage loans are held in securitization vehicles, such as investment trusts and real estate mortgage investment conduits (“REMICs”), that are required to meet certain provisions of the Code to obtain specific tax treatment, the issue arises as to whether such forbearance and any related loan modifications could jeopardize the federal income tax qualifications of the securitization vehicles.

REMICs and investment trusts, as noted, are subject to a series of special rules and limitations.  For example, Section 860F(a)(1) imposes a tax on REMICs equal to 100 percent of the net income derived from certain “prohibited transactions.” Furthermore, under Section 860D(a)(4), an entity is qualified as a REMIC only if, among other things, substantially all of its assets consist of “qualified mortgages” and other permitted investments. Generally, a mortgage loan is not a qualified investment unless it is transferred to the REMIC on the REMIC’s start-up date in exchange for regular or residual interests in REMIC. Additionally, to prevent potential abuses, a REMIC, upon accepting a mortgage, must not have any improper knowledge of an anticipated default.

On April 13, 2020, the IRS released Revenue Procedure 2020-26,[16] providing relief for investment trusts and REMICs to ensure that these entities continue to meet important qualification requirements in spite of potential forbearance or other loan modifications in connection with the COVID-19 pandemic. In so doing, Revenue Procedure 2020-26 provides welcome relief with respect to many U.S. federal income tax issues relating to REMICs and investment trusts that had been sought by the securitization industry in its efforts to mitigate the adverse effects of the pandemic on mortgage borrowers.


Revenue Procedure 2020-26 provides that for mortgage loans held by REMICs, forbearance and all related modifications: (A) are not treated as resulting in a newly issued mortgage loan, (B) are not considered “prohibited transactions”, and (C) do not result in a deemed reissuance of the REMIC regular interests. Similarly, for mortgage loans held by investment trusts, forbearance and all related modifications would not constitute “manifesting” a power to vary the investment of the certificate holders, which would similarly disqualify such investment trusts from their status as grantor trusts. Finally, Revenue Procedure 2020-26 provides that, in situations where REMICs acquire mortgages with respect to which the borrowers previously received forbearance due to COVID-19-related hardship, such forbearance and related modifications are not treated as evidence that the REMIC had improper knowledge of an anticipated default.


For More Information

Jeffrey D. Uffner

Michelle M. Jewett

Kevin Matz

Brian J. Senie

Daniel Martinez

Lauren W. Shandler

[1] 2020-18 IRB 742.

[2] 2020-15 IRB 590.

[3] 2020-16 IRB 660.

[4] Section references herein refer to the Internal Revenue Code of 1986, as amended (the “Code”) unless otherwise specified.

[5] 2020-18 IRB 749.

[6] 2020-18 IRB 750.

[7] 2020-18 IRB 744.

[8] As discussed infra in connection with Revenue Procedure 2020-25, it is believed this result was intended under the TCJA, but was impermissible (prior to the CARES Act) due to a technical glitch excluding such property from the proper treatment.

[9] 2020-18 IRB 745.

[10] 2020-19 IRB.

[11] Section 168(k)(5).

[12] Section 168(k)(7).

[13] Section 168(k)(10).

[14] Section 168(g)(7).

[15] With respect to the items in this paragraph, “taxpayers” excludes BBA partnerships which are provided for in Rev. Proc. 2020-23, also discussed herein.

[16] 2020-18 IRB 753.

This Stroock publication offers general information and should not be taken or used as legal advice for specific situations, which depend on the evaluation of precise factual circumstances. Please note that Stroock does not undertake to update its publications after their publication date to reflect subsequent developments. This Stroock publication may contain attorney advertising. Prior results do not guarantee a similar outcome.