The Coronavirus Aid, Relief, and Economic Security Act , which President Donald Trump signed into law last month, fixed the so-called retail glitch by allowing companies to immediately write off expenses related to qualified improvement property, or QIP. An unintended provision in the 2017 Tax Cuts and Jobs Act subjected such expenses to a 39-year recovery period, making them ineligible for bonus depreciation.
While the new law will open access to approximately $15 billion in liquidity, as one trade group estimated, businesses may be required to wait up to 16 weeks before receiving refunds if they file amended returns for the previous two years. Instead, their trade associations are asking Congress to allow retailers to file Form 1139, which would cut down on the wait time substantially.
"Filing an amended return would take a significant period of time," David Koenig, vice president for tax at the Retail Industry Leaders Association, told Law360. "The preferred way to get the money from the QIP change would be to file Form 1139."
Form 1139, Corporation Application for Tentative Refund, allows companies to apply for a quick refund of taxes for net operating loss carrybacks and other items. The IRS recently said it would implement temporary procedures to accept faxes of refund claims resulting from net operating losses on Forms 1139 and 1045, the corresponding form for individuals, estates and trusts.
Currently, only claims allowed under Sections 2303 and 2305 of the CARES Act, which relate to net operating losses and alternative minimum tax credit refunds, can be faxed in under the temporary procedures.
The Retail Industry Leaders Association, however, believes retailers should also be allowed to access their qualified improvement property refunds by filing Form 1139, Koenig said.
The group discussed the matter with the IRS' Office of the Chief Counsel within the past few weeks, he said, adding that the agency's officials have been amenable to the concerns raised by retailers.
"I'm pretty confident we're going to get some guidance," Koenig said
If retailers can access their QIP refunds by filing Form 1139, that could significantly cut down on the wait time, Ellen McElroy, tax partner at Eversheds Sutherland, told Law360. The IRS typically responds to such applications within 90 days.
In contrast, the agency may take 16 weeks to process amended returns, according to the IRS' website. But in practice, the wait time can be "all over the map," McElroy said, and typically relies upon how complicated a given return may be.
Even though the agency has signaled it would expedite its processing of amended returns, allowing retailers to file for "quickie returns" using Form 1139 is "absolutely something the IRS should do," McElroy said.
The IRS released guidance Friday clarifying that only improvements made by taxpayers themselves would qualify for the QIP provision included in the CARES Act, McElroy said. An individual business owner, for instance, can't benefit from bonus depreciation associated with improvements made by a previous owner of the property.
Rev. Proc. 2020-25 also allows businesses to change their depreciation with respect to QIP placed in service in 2018-2020 and allows for several late elections relating to depreciation.
Although retailers are suffering the economic fallout associated with the coronavirus, adding the QIP provision to the CARES Act was a major accomplishment for the industry, Koenig said. It was the result of a longtime campaign to address the technical error in the TCJA.
"A lot of hard work over the last couple of years has paid off," he said. "I just wish it didn't take a pandemic to get it done."
The IRS could not immediately be reached for comment.
--Additional reporting by David van den Berg and Amy Lee Rosen. Editing by Tim Ruel and John Oudens.
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