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Revenue Procedure 2020-24 and International Tax Considerations

by Jon Davies, Surbhi Bordia, Timothy Guderian, Miho Ikeda, Jun Tamahashi
April 20, 2020

Background

Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) modified section 172 by adding a new section 172(b)(1)(D)(i) which provides that net operating losses (“NOL”) arising in tax years beginning after December 31, 2017, and before January 1, 2021 may be carried back to each of the five tax years preceding the taxable year of the NOL.

In connection with this new provision, taxpayers may choose to make certain elections to waive carryback periods. IRS has detailed the procedures in Revenue Procedure 2020-24 on how and when to make such elections.

International Tax Considerations in Making Such Elections

As Taxpayers are absorbing the IRS guidance in Revenue Procedure 2020-24, it is important to model out how the Rev. Proc. 2020-24 elections will impact the Company’s cash tax liability for each impacted year. In addition to federal corporate tax laws, a list of a selected international tax consideration will need to be evaluated and factored in the modeling, few of them are highlighted below:

  1. Impact of NOL carryback to pre-section 965 inclusion year and subsequent impact of transition tax liability in a section 965 inclusion year as a result of excess foreign tax credit carryovers to transition tax year.
  2. Impact on foreign tax credit limitation, in general, under section 904. Tracking the allocation or recapture of a separate limitation losses (“SLL”), overall foreign losses (“OFL”) and overall domestic losses (“ODL”), under section 904(f) and (g).
  3. Impact of NOL carrybacks (relevant for tax years 2018 and 2019) on Base Erosion and Anti- Abuse Tax (“BEAT”) under section 59A.
  4. Impact of NOL carrybacks on section 250(a)(2) limitation, which reduces a domestic corporation’s section 250(a)(1) deduction with respect to Foreign- Derived Intangible Income (“FDII”) and global intangible low-taxed income (“GILTI”).

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